Mexico Economic Outlook. Fourth quarter 2021

Rising inflation in Mexico is due to supply shocks and will subside next year. Economy recovers from the crisis, but in a slow and incomplete way.

Key points

• Key points:
• Downward revision to our growth estimate for 2021 to 6.0% (6.3% previously) given the weakness of domestic consumption and the extension of bottlenecks.
• The pace of formal job creation (IMSS) accelerated in 2H21, but high levels of labor informality and underemployment prevail.
• We anticipate inflation will continue to be high in the coming months due to changes in relative prices, but it will decline strongly as of 2Q22.
• Banxico will increase the monetary rate in the next two meetings to reach 5.25%; afterwards it would start a pause with the expectation that inflation will decline markedly as of 2Q22.
• The current balance in the electricity sector can be improved, but the reform would be a serious regression.

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