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Economic outlook for the U.S.-Mexico border in 2023

By: Dr. Alejandro Diaz-Bautista, Economist and Researcher

  • Inflation will carry on the U.S.-Mexico border with slower economic growth in 2023.
  • Economic Growth of 1.5% for the United States and 1.2% for Mexico in 2023.

The economic outlook for the U.S.-Mexico border for 2023 has deteriorated under the economic challenge of high inflation rates and rapid monetary tightening in Mexico and the United States.

Falling consumer confidence, weakening consumption and investment, and geopolitically induced energy shocks are likely to lead the economy to post little or no economic growth early in the year.

However, the economy is expected to pick up, amid a strong job market and healthy trade balances across North America.

Key risks surrounding the long-term prospects for the U.S.-Mexico border are related to the trade agreement, geopolitical frictions, environmental challenges, labor markets, supply chains, and inflation.

After the large drop in North American gross GDP in 2020 due to the impact of the COVID-19 pandemic, the Mexican and United States economies experienced rapid growth for much of 2021.

However, in 2022, the economic growth momentum has not been as strong.  Inflation is expected to remain above pre-pandemic trends for several years.

At the end of 2022, the U.S. and Mexican economies were dealing with a wave of high inflation driven by a confluence of supply and demand factors that we do not expect to be resolved quickly.

Interest rates have risen in 2022. We don’t expect interest rates to drop until 2024 or 2025. The Federal Reserve has rapidly tightened monetary policy and will continue to raise interest rates in early 2023.

The expectation of economic growth in the United States will be close to 1.5 percent in 2023, but the real GDP growth of the United States and Mexico can recover in 2024. The economic impacts caused by the Covid-19 pandemic will have lasting effects on the engines of economic growth in North America in the coming years and will have lower contributions from workers due to the aging population.

The acceleration of digital and industrial transformation due to the pandemic and ongoing investments in infrastructure may result in high total factor productivity (TFP) growth over the next decade.

The positive world economic outlook depends on a successful calibration of monetary and fiscal policies in the countries, the course of the war in Europe, the economic growth of the United States, and the growth prospects in China. The risks continue to be inflation; the volatility of the US dollar; debt problems in emerging markets; and a worsening crisis in China’s real estate sector.

Governments need to focus on restoring price stability and easing the cost-of-living pressures. Multilateral cooperation is still needed to accelerate the transition to green energy in the coming years.

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