Brazil, Colombia and Mexico start 2023 on weak footing

Pollyanna De Lima, Economics Associate Director Economic Indicators & Forecasts at S&P Global Market Intelligence crunches the latest Latin American numbers...


Latin American economies exhibited signs of fatigue towards the end of the year and a discouraging start to 2023 was signalled by the S&P Global PMI data, with widespread contractions in manufacturing output evident across Brazil, Colombia and Mexico as price pressures, high interest rates, subdued underlying demand and challenging market conditions stifled factory orders. In Brazil, service sector resilience continued to fade, with the results for January highlighting the weakest expansions in new business and output for over a year-and- a-half.

Growth is widely expected to slow in 2023 as central banks’ efforts to bring inflation back to their targets continue to constrain spending and investment due to elevated interest rates. Besides, business confidence is fading, fiscal imbalances need addressing, social tensions remain high and trade opportunities difficult.

Our 2023 GDP estimates for Brazil and Mexico have been upgraded since the magazine was last printed in Q4 2022 from +1.3%, and +0.7% to +1.6% in both cases. The relatively large upswing in Mexico’s forecast mostly reflects better prospects for the US economy and auto exports. Colombia’s economy is predicted to expand +0.6% this year, a downward revision from +0.9%.

Embedded in our forecasts are assumptions that fiscal prudence will be maintained and local currencies strengthened. Restrained inflation would yield looser monetary policy later in the year, boosting consumption and investment and supporting the economic recovery.


Inflation, high borrowing costs and public policy worries dampened demand for Brazilian goods at the start of 2023. Besides weak sales, PMI panellists indicated that the cancellation and postponement of existing orders led them to trim production and shed jobs in January.

While the post-election manufacturing malaise was extended to January, rates of contraction for all three aforementioned measures softened considerably from December. Business sentiment weakened, but remained historically elevated amid predictions that new product releases and investment could support output in the coming 12 months. Regarding price indices, charge inflation was hampered by manufacturers’ efforts to secure new orders, shift excess stocks and remain competitive. Input costs rose at a stronger rate that was nevertheless one of the slowest seen for four years.

Service providers sustained growth of new business and output in January albeit with rates of expansion easing to the weakest since May 2021. PMI data also showed stronger increases in both services costs and charges.

Signs that price pressures are regaining traction will present further challenges to policymakers. The official inflation rate for the monetary policy target was at +5.8% in January, its joint-lowest for nearly two years but still above its upper limit of +4.75%. Any resurgence will further delay cuts to the SELIC, which has been held at 13.75% since last August.

Monetary policy easing owing to the convergence process towards the inflation target is predicted from the second quarter of 2023, with our year-end forecast for the SELIC at 10.5%. We anticipate consumer prices to moderate to an annual average of +4.0%.


Colombia’s manufacturing industry slipped into contraction territory in January, according to PMI data, reversing the expansion registered in December. With new orders falling at the quickest pace in 19 months and unsold goods being placed into inventories, firms scaled down production. Input costs and output charges again rose at historically elevated rates owing to greater fuel, material and transportation prices. Firms also noted that peso weakness, the war in Ukraine and a higher minimum wage added to their expenses.

Official inflation data continued to trend higher in January, reaching a near 24-year peak of +13.3% and leading to further monetary policy tightening. At 12.75%, the policy rate is at its highest since November 1999. We expect the interest rate to be maintained at this level until at least mid-year and end 2023 at 11.0%.

PMI panellists became increasingly worried about the detrimental impact of inflation, peso weakness and rising labour costs on growth prospects. Business sentiment fell to its lowest since April 2020, causing job shedding and boding ill for future recruitment and investment. The unemployment rate reported by DANE rose to 10.27% in December, which we anticipate will increase further and end the year at 11.2%. Regarding real GDP, we forecast growth of +0.6% in 2023.


Although Mexico’s manufacturing industry was back in contraction in January, rates of reduction in sales and output were moderate. According to survey participants, acute price pressures and excessive stocks among clients prevented them from placing new orders.

Annual core inflation picked up to +8.45% in January, while PMI data showed the weakest increase in input costs for 14 months parallel to a stronger upturn in producer prices. These remain historically elevated, but slowdowns are expected as the year progresses. Our forecasts for inflation and interest rates stand at +5.7% and 8.7% respectively.

When providing their assessments for the outlook, goods producers displayed concerns about price pressures and raw material scarcity. That said, new product releases and advertising were widely expected to boost sales and subsequently production. For the whole economy, we forecast real GDP growth of +1.6% in 2023. Better prospects for light vehicle sales in the US, which could aid Mexican exports of autos, alongside expectations of improved business confidence, higher investment, peso appreciation and lower interest rates underpinned the upward revision.