Interview: Possible recession in U.S. presents additional hurdles for emerging economies, says Mexican economist

MEXICO CITY, Dec. 27 (Xinhua) -- The possibility of a deep and long-lasting recession in the United States, amid high inflation and high interest rates, could bring additional complications for emerging markets in 2023, a Mexican economist has warned.

Besides the ongoing COVID-19 pandemic and the crisis in Ukraine, the direction of interest rates in the United States, which are at their highest levels in decades, remains unclear, Mario Correa, president of the National Economic Studies Committee at the Mexican Institute of Financial Executives, told Xinhua in a recent interview.

"With a more restrictive monetary policy ... the chances of a sharp slowdown or a recession in the United States are increasing," Correa said, noting that the valuation of many assets that are held in the financial markets "is influenced by the interest rate level."

The strong volatility that global financial markets have seen this year can be attributed to investor perplexity over the inflation trajectory and the reaction of central banks, such as the U.S. Federal Reserve, whose benchmark rate is currently between 4.25 and 4.5 percent, up from near zero in March, he said.

Emerging markets like Mexico are highly dependent on international investment flows, said Correa, adding that the flows available to emerging markets could be much lower, given the higher interest rates.

"And it will be necessary to see what the financial strength is, especially in public finances, of the ... emerging markets, since those that do not have a good financial and fiscal position will probably be the first to suffer this change in international flows," he warned.

The expert said that some commodity-focused countries such as Peru and Chile could have a buffer, as their economies are oriented more towards China, one of the few countries that will likely be in a better economic situation in 2023.

Official figures show that Mexico sends about 80 percent of its total exports to its neighbor and leading business partner, the United States. Correa added that Mexico could fall into a recession primarily due to the contraction of exports.

The Mexican economy, the second largest in Latin America after Brazil, grew 4.8 percent in 2021, after a decline of 8.2 percent in 2020 amid the COVID-19 pandemic, official data showed.