Mexico Cuts Its Growth Forecast on Pandemic, Ukraine

(Bloomberg) -- Mexico's central bank cut its growth forecast by almost a full percentage point for this year, saying that the Covid-19 pandemic and geopolitical conflicts has deteriorated the economic outlook for the country.

Banxico, as the central bank is known, sees gross domestic product expanding by 2.4% for this year, down from the 3.2% seen in its previous report three months ago. For 2023, it's expected to reach 2.9%, according to the bank's quarterly inflation report released Wednesday.

Growth rates in Mexico continue to lag behind those seen in the U.S., despite a boom in demand from its biggest trading partner. The country narrowly dodged recession in the fourth quarter amid supply chain snarls and a lack of fiscal stimulus.

Mexico Dodges Recession as Economy Stalls in Fourth Quarter

The central bank forecasts inflation to reach 4% by the end of the year, above its 3% target but unchanged from a previous estimate in its February rate decision. The central bank predicted that inflation would slow toward target by the end of 2023, suggesting a long road ahead for the Mexican economy, which narrowly avoided recession at the end of last year.

Wednesday's inflation report was the first headed by new Governor Victoria Rodriguez Ceja, who took up her post at the beginning of 2022 as a newcomer to the field.

President Andres Manuel Lopez Obrador surprised markets last year by nominating Rodriguez Ceja, until then a low-profile budget official, to become the bank's first female governor. Her vote for a half-percentage-point hike at her first meeting as Banxico's chief last month somewhat reassured investors looking for signs that she'd hold to the bank's tradition of conservative monetary policy.

Banxico has increased rates at all of its decisions since June, opting for half-point hikes in its December and February meetings after a previously more moderate rate of adjustment.