2023 was undoubtedly a good year for the Mexican economy. Various indicators point to this. In this last article of the year we will briefly review the progress and results achieved in Mexico in areas such as growth, inflation, exchange rate, labor market and foreign trade. In all cases, we compare expectations for the Mexican economy a year ago with the latest official figures or with current expectations for the end of 2023.
Let's start with economic growth. The Private Sector Economists Expectations Survey (EEEESP), published by the Bank of Mexico on December 16, 2022, estimates GDP growth for 2023 at just 0.90%. The central bank's own forecasts were slightly more optimistic, but still relatively low: the key growth expectation for 2023, published on November 30, 2022, was 1.8%, with a possible range set between 1% and 2.6%. The development of the Mexican economy in 2023 has significantly exceeded these forecasts. According to EEEESP of December 15 of this year, it is now estimated that the Mexican economy will grow by 3.4% in 2023, well above forecasts from a year ago and even above the optimistic scenario of the Bank of Mexico.
In terms of inflation, the specialists surveyed in the EEEESP in December last year predicted general annual inflation of 5.1% for 2023. The last known data from the first half of December showed an annual inflation rate of 4.46%. Since we only need to know the data for the second half of the month, it is very likely that annual inflation for the whole of 2023 will be very close to the above value. In fact, the EEEESP projects annual inflation of 4.44% for December this year. In any case, the inflation rate at the end of 2023 will be at least half a percentage point lower than expected at the end of 2022.
Regarding the exchange rate, the specialists interviewed at the EEEESP in December 2022 assumed an exchange rate parity of 20.8 pesos per dollar at the end of 2023. Just a few weeks ago, specialists were still expecting the year to end at 17.57 pesos per dollar. Today we know that the exchange rate at the end of the year was 16.92 pesos per dollar. A very significant appreciation that no one expected. Thus, the strength of the Mexican peso, explained, among other things, by a huge difference in interest rates between Mexico and the United States (but not only by this), is another factor that reveals the solidity of the Mexican economy in an environment extremely complex international
As for the labor market, the EEEESP of December 2022 expects the creation of 400,000 formal jobs in the IMSS during 2023 and a decrease in the national unemployment rate to 3.68%. The latest official figures released (data as of November 30) show that around 700,000 formal jobs are created annually (75% more than forecast a year ago!) and that the national unemployment rate is just 2.7%, the lowest there We have comparable official records. As expected, the EEEESP of December 15 this year shows that experts have adjusted their expectations to the creation of 730,000 formal jobs in the year and an unemployment rate of 2.8% at the end of the year.
As for the external sector, at the end of 2022, the EEEESP expected a trade deficit of more than $20 billion, a current account deficit of $15.6 billion and foreign direct investment of $32.6 billion in 2023. Now, in December 2023, experts expect a year-end trade deficit of just $13.6 billion, a current account deficit of $16 billion (a very small increase) and foreign direct investment of more than $37 billion. Thus, foreign deficits would have been lower or virtually as high as expected, while foreign investment would have been higher than expected. It should be noted that, according to the Ministry of Economic Affairs, the foreign direct investments received in the third quarter of 2023 were almost $33,000 million. This implies that only in the first nine months of the year would the foreign investments expected by the experts for the entire year have been received.
The Bank of Mexico's EEEESP concludes with some questions regarding the perception of the country's economic environment. When asked how they assess the current investment situation, at the end of 2022, 14% of professionals said it was a good time, while 53% thought it was a bad time, the rest (33%) said I'm not sure. On the other hand, at the end of 2023, the positive answers are 43%, the negative ones are 20% and the uncertain ones are 37%. As you can see, the ratio between positive and negative reactions changed from -39 percentage points to +23 in just one year, which represents a remarkable change in investment sentiment in the country.
In short: 2023 was a very good year for the Mexican economy. Growth, job creation and foreign direct investment were greater than expected; while inflation, unemployment, exchange rate and trade deficit were lower than expected. Clearly there are still challenges that need to be addressed: economic growth has been relatively low so far over the next six years; Poverty, although reduced, is still very high; A large part of the population continues to be affected by insecurity and extortion has increased. Before us lies a unique opportunity, the relocation of activities (nearshoring). While there is still much to be done if we are to maximize the potential of this phenomenon to benefit large parts of the population, it is important to start with the most basic thing: recognizing the progress that has been made. Only then can we identify what needs to be retained and what needs to be adjusted.
I wish all my readers a happy 2024.
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