Global Economic Outlook – September 2022 Mexico: Stable but surrounded by risks Compared to other emerging markets, In case of a The central bank’s Mexico has been a laggard in economic recession, Mexico response to inflation has growth. With or without a recession in late has the fiscal space been strong, with rates 2022 or early 2023, the long-term outlook for a countercyclical expected to hit 9.5% by for Mexico remains about 2%. policy response. the end of 2022. Growth in Mexico is expected to slow over the remainder of Table 4: KPMG forecasts for Mexico 2022, even though the first half of the year surprised to the 2021 2022 2023 upside. GDP is expected to come in at 1.7% year-on-year after rising by 5% in 2021. The level of economic activity is GDP 5.0 1. 7 1. 5 expected to be 2% below its pre-pandemic level by the end Inflation 5.7 8.0 5.5 of this year. Public and private investment have been a drag on growth. The Mexican economy is currently 7% below the Unemployment rate 4.1 3.5 3.8 growth trajectory it was on before Covid hit. A slowing U.S. Source: KPMG Economics, National Institute of Statistics and Geography (INEGI). economy will further impact growth prospects in Mexico Note: Average % change on previous calendar year except for unemployment rate, due to close trade relations. which is average annual rate. Compared to other emerging markets, Mexico has been a laggard in economic growth. Prior to the pandemic, Chart 13: Growth in Mexico remains below trend Mexico’s growth had been rising at a meager (compared to its Latin American counterparts) 2% per year. With or 21 without a recession in late 2022 or early 2023, the long-term Recession Pre-pandemic outlook for Mexico remains about 2%. 20 trajectory rillions19 Consumer spending is over two-thirds of the economy and T has been rising steadily since the pandemic slump in early eso, 18 2020. With inflation at multi-decade highs, retail activity has Forecast been hit in recent months, but remains above pre-pandemic 17 3 Mexican P levels for now due to strong consumption and a return of 1 , 20 16 Actual tourism (which accounts for 15% of GDP). GDP 15 The unemployment rate hit 3.3% in July 2022 – a 14 pre-pandemic low. Wage growth remains strong, while 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 remittances hit a record high in 2022 and are expected to Source: KPMG Economics, INEGI/Haver Analytics. keep rising. Remittances are a crucial source of income for Mexican households, adding up to about 3.9% of GDP in 2020. The unemployment rate is expected to move up into next year and 2024 as the central bank continues its tightening cycle. By the end of 2022, the unemployment rate will likely hit 3.5%, with 2023 averaging 3.8%. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 15