Mexico sees growth of up to 3% this year, eyes nearshoring boost

By Anthony Esposito

MEXICO CITY (Reuters) -The Mexican economy could grow up to 3.0% both this year and next, boosted by increased manufacturing investment and cooling inflation, according to a copy of the government’s latest budget forecasts seen by Reuters on Friday.

The ministry estimates Latin America’s second-biggest economy will expand between 2.2% and 3.0% this year, and between 1.6% and 3.0% in 2024, the document showed, as the country continues to claw back pandemic-led losses.

For 2023, the “lower end of the range was adjusted upwards due to the good performance of the domestic economy,” said the document containing preliminary forecasts for next year.

Mexico’s inflation rate by the end of this year is seen slowing to 5.0%, and then to 4.0% by the end of 2024.

As inflation climbed worldwide, central banks rushed to hike interest rates and slow the trend. Mexico’s central bank raised rates 25 basis points to 11.25% Thursday, but hinted the hiking cycle could be nearing its end.

The international rate increases have not compromised Mexico’s public finances, the ministry said.

Debt when President Andres Manuel Lopez Obrador’s term concludes next year should be “moderate and diversified,” the ministry said, with around 80.6% denominated in Mexican pesos.

The ministry forecast Mexico’s export mix to average $66.60 per barrel this year, then slip to $56.30 next year, in estimates that are key to public finances since exports from state oil company Pemex represent a major source of tax revenue for the government.

The ministry saw total crude output at 1.877 million barrels per day (bpd) this year, mostly coming from Pemex operations, then ticking up to 1.914 million bpd in 2024.

The Dos Bocas refinery, a Lopez Obrador project underway in the Gulf state of Tabasco, is expected to begin operating at full capacity next year, the finance ministry said.

Mexico is also primed to benefit from private investment fueled by “nearshoring,” the trend of moving production to North America and away from Asia, the ministry said.

Nearshoring could add up to 1.2 percentage points to GDP the ministry said, without specifying a time frame.

In particular, the ministry anticipated a boost to foreign investment in manufacturing, and said the automotive industry was a “natural candidate” to take advantage of nearshoring.

Electric vehicle maker Tesla (NASDAQ:) recently announced it would build a “gigafactory” in the northern border state of Nuevo Leon, which local officials have said could bring in up to $10 billion in investment and create 10,000 jobs.

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