The conflict in Ukraine increases the possibility that disruptions in supply chains will continue and that the prices of different inputs will increase even more, warned the Bank of Mexico.
Companies could face higher production costs due to increases in the prices of raw materials, particularly in regions that specialize in agro-industrial production such as those in the north center, said the director of Price Analysis, Regional Economy and information in Bank of Mexico, Alejandrina Salcedo Cisneros.
In the aforementioned region there are businessmen from the states of Aguascalientes, Baja California Sur, Colima, Durango, Jalisco, Michoacán, Nayarit, San Luis Potosí, Sinaloa and Zacatecas.
During the presentation of the “Report on regional economies”, the official highlighted that if new disruptions in the supply chain are confirmed, the companies that will be affected in Mexico are those located in the northern and central regions.
Those of the northern region operate in the states of Baja California, Chihuahua, Coahuila, Nuevo León, Sonora, Tamaulipas. And in the central region are those of Mexico City, State of Mexico, Guanajuato, Hidalgo, Morelos, Puebla, Querétaro and Tlaxcala.
Inside the document, Banxico’s economic research team, which continues to operate without a director, estimated that the conflict between Russia and Ukraine represents important risks for economic recovery.
They stated that the increase in uncertainty due to the development of the geopolitical conflict imposes the need to promote conditions that encourage investment.
The official said that “given the complex environment that the pandemic still represents and the risk of geopolitical conflict, it is necessary for regional economies to promote adequate conditions for private investment.”
In particular, he mentioned the strengthening of the rule of law and public security.
“Entrepreneurs have told us that it is important for their investments to have a governance environment. This means that they have certainty, that they know well what the environment is to maintain their investments so that they can make their decisions,” said the official.
Agri-food industry, more sensitive
The expert highlighted that the survey carried out by Banxico among businessmen from the four regions to integrate this report was collected long before the conflict worsened, at the end of February.
Therefore, “we did not have as many mentions of effects that companies would suffer.”
He admitted that they were struck by the fact that it was the businessmen from the center-north, specifically from the food industry, who recognized that there was a risk of an increase in the price of inputs, particularly energy and food in the face of the advance of the conflict.
Inflation discourages tourism
Salcedo also highlighted that businessmen stated that high levels of inflation can affect economic recovery and the dynamics of their productive activity.
In fact, within the document, they showed that the businessmen of the northern region stated that the increase in inflation affected the budget for trips and events by families and companies.
At a general level, businessmen in the tourism sector said that “the decrease in the purchasing power of the population associated with the weak recovery of employment and higher inflation has generated lower spending on tourism activities.”
Economic slowdown and insecurity
Entrepreneurs across all regions indicated three downside risks to their economic performance, the first being the persistence of the pandemic and its impact on a less vigorous recovery.
The second is that public security indicators deteriorate, particularly in companies in the southern region where Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, Tabasco, Veracruz and Yucatán are located. And the third, that the internal uncertainty that affects investment persists.
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