Mexico. –
In Mexico, inflation will remain strong after the 20% increase in the minimum wage and the increase in vacation days.
The moderate recession in the U.S. will keep the price of raw materials without a significant increase. Still, I believe that the pact between the government and the private sector not to raise prices will end by March, or there will be shortages of essential products.
The economy will grow barely 2%, mainly because of what happens in the United States. Still, the border area will take advantage of the return of manufacturing from China to America and will have an appreciable increase.
The peso will remain in a range of 19.70 to 21.00, losing some value due to the government’s fiscal deficit, which no longer has the trusts to appropriate nor many candidates for abusive tax reviews.
I believe that the persecution of tax evaders will become very intense. Although debt as a percentage of GDP remains appropriate, the country has problems servicing that debt.
Pemex will continue to increase its debt which is already at $110 billion, and will require additional government support to prevent its rating from deteriorating to junk bond levels.
I believe the government will slightly modify its position on clean energy, and there will be more permits and fewer hurdles for renewable energy companies.
There will be much more car imports from China, especially electric vehicles, at prices that more people can afford.
Government mega-projects will continue to burden the federal budget, and neither the Tren Maya, the 2 Bocas refinery, nor the AIFA will produce positive cash flow.
United States. –
In the United States, the central bank (FED) will continue increasing its interest rate to 5.35-5.50% to stop inflation.
The supply chain problem will be solved, but the labor cost will come down much slower, as there are still many vacancies and companies are reluctant to lay people off, as it will be difficult to replace them when the economy improves.
I believe unemployment will not go above 5.5% (today, 3.7%), but remember that 5% was considered “full employment” a few years ago.
I think GDP will increase by about 1.5%, similar to 2022, mainly because productivity will go down as investment in automation decreases and manufacturing less for inventories because of the incremental cost of capital.
There will be a minor recession during the second and third quarters. Still, it should not be profound since we are starting from low unemployment, a very robust banking system, and people’s savings from what the government gave them during the pandemic.
The dollar will probably appreciate against other strong currencies, especially because rates will continue to rise.
Economic activity spurred by government actions is going to decline because, with a Democratic Senate and a Republican lower House, a lot of spending proposals are going to fall through the cracks, as I feel it’s going to be a pretty antagonistic two years.
Bitcoin, I think, will go down to $12,000 in the first half of the year to come back above $20,000 in the second half.
Europe. –
England is still suffering since leaving the European Union, and inflation in 2022 was sky-high. I don’t doubt there will be a recession during 2023.
Germany and the Nordic countries depend on Russia for energy, and if the Ukraine war lasts much longer, the impact on their growth will be felt. They are industrialized countries that rely heavily on their exports to the United States, and if there is a recession in North America, there will be a recession there as well.
Southern Europe, especially France, Italy, and Spain, still have high unemployment and a lot of capital needs, and the era of cheap money is over. I don’t think they will have economic growth, making it difficult for the old continent to reach 2%.
Israel. –
With a good year in 2023 and relatively low debt, Israel should grow by about 3.5%. The decline in the valuation of technology companies in the global stock markets will affect the economy, a significant source of financing for the private sector in Israel.
The entry of the Netanyahu government should be good for the country’s economy as long as it does not create an impasse in the country’s economic and political life.
Rest of the World. –
The China-Russia alliance is now trying to include India, creating an internal passage for the transportation of oil and other raw materials.
The imposition of price caps on Russian oil, the transfer of part of China’s manufacturing to America, and the leftward movements in Latin America, make us assume that it is not going to be a very good year for all these countries and that the 10% GDP growths of yesteryear in emerging countries will be only memories.
The International Monetary Fund anticipates a global growth of only 3.1% for 2023, and that is only if there are no new political crises in Taiwan, North Korea, countries of the old USSR, or some other part of the world.
I anticipate that 2023 will be better for the financial markets, which in 2022 had their worst year since 2008.
I hope my crystal ball is less cloudy than last year, as I did not foresee such a significant drop in the stock markets or the 167% increase in the 10-year bond rate.
