If the Mexican oil mix averages this year at a price of 95 dollars per barrel, the public coffers will register additional income equivalent to 2% of GDP, estimated economists from Bank of America Securities (BofA Securities).
This price would be presented as a result of the tension due to the war between Russia and Ukraine.
But the impact that these surplus revenues will have on public finances ranges from neutral to “slightly negative”, as the presidential promise to avoid a transfer in the price of gasoline is fulfilled, they highlighted in an analysis.
The federal budget for this year considers that the price of oil would be an average of 55 dollars per barrel and has continued to rise since the war between Russia and Ukraine began, to the point that it reached 115.6 dollars on Monday, March 7.
BofA experts estimate that the government will lose revenue equivalent to 1% of GDP in the gasoline subsidy and another 1% in the complementary stimulus.
Within the analysis for Mexico, entitled “Impact of the Ukraine crisis is greater due to oil prices”, they added that in the case of Mexico “a 10% increase in the price of oil increases annual inflation by 40 basis points the next year”.
So the rise in the price of hydrocarbons will also push up inflation.
According to the research department, led for this analysis by the chief economist for Mexico and Canada, Carlos Capistrán, Mexican inflation will register an annual variation of 6% from the 5% forecast in January.
They add to the negative outlook for inflation, the rise in fertilizer prices that had already been pressured by the interruption of supply chains and that now, with the war, will have greater tension, accelerating the escalation in food prices.
They also predict that inflation will remain under pressure for next year, when they expect an annual fluctuation of 4.6%, which would indicate a third consecutive year of inflation outside the Bank of Mexico’s target.
“These inflation expectations incorporate Andrés Manuel López Obrador’s promise that gasoline prices will not increase in real terms during his administration,” they emphasized.
come stagflation
BofA economists consider that this episode of the war between Russia and Ukraine will be “the biggest stagflationary shock for Mexico”,
Stagflation is a rare phenomenon, whose close antecedent is found in the United States, between 1970 and 1981, when economic activity failed to grow and even so there was upward pressure on inflation.
They projected that this higher inflation will motivate the Bank of Mexico to accelerate the rate hike, which will also put pressure on the conditions for economic recovery.
And it is that in addition to the tightening of domestic credit conditions due to the increase in rates for this year, the economy will face the lower dynamism of exports, driven by the moderation of activity in the United States and the uncertain international environment.
In this way, BofA Securities strategists find downside risks to their 1.5% forecast for Mexican GDP this year and cut their forecast for 2023 to 2%. Next year’s projection is far from 2.2 % they estimated in January.
They commented that the economic impact of the war will come through channels such as the low growth of the United States, the deterioration of the commercial exchange, the risk of greater market volatility and the impact of the tightening of internal and external monetary conditions.
In fact, they stressed that the war context will lead the United States to moderate its performance. Now they see it with a 3.3% advance for this year which is lower than the 3.6% forecast previously.
Interest rate with 300 base points more
They projected that this higher inflation will motivate Banxico to accelerate the rate hike, which will also put pressure on the conditions for economic recovery.
Now, BofA Securities anticipates that Banxico’s Governing Board will make seven increases in the rate to bring it to 9% by the end of the year; If correct, this would be the highest level of income in the recent history of Mexico.
The new forecast exceeds the one they had in January, which was at 7.50 percent.
According to the BofA experts, the doses of the increases will be divided as follows: five increases of 50 base points each and two more than a quarter of a point, which implies that in the year they will increase the rate by 300 points base.
For next year they do not expect more revenue increases.