The current account balance stood at a surplus of USD 6.2 billion in 2Q23, above market expectations of a surplus of USD 3.4 billion (as per Bloomberg). As a result, the 4-quarter rolling current account balance stood at a deficit of USD 17.8 billion or 1.2% of GDP (practically unchanged from 2022, but below the 1.8% deficit in 1Q23). Also, on a 4-quarter rolling basis, the improvement in the current account was driven by a smaller energy goods trade deficit of 2.0% of GDP in 2Q23 (from a deficit of 2.5% of GDP in 1Q23) while remittances stood practically unchanged at 4.0% of GDP in 2Q23. On the financing side, net direct investment came in at 1.8% of GDP in 2Q23 (practically unchanged from 1Q23). Net portfolio flows registered inflows of 0.1% of GDP in 2Q23 (from a balanced figure in 1Q23), which resulted from Mexicans divesting 0.6% of GDP (from a divestment of 0.5% of GDP), while foreigners sold domestic assets totaling 0.5% of GDP (practically unchanged from the previous quarter). Foreign inflows to domestic government bonds were 0.1% of GDP in 2Q23 (from 0.2% in 1Q23).
Our take: We expect the current account deficit to narrow slightly from 1.3% of GDP in 2022 to 1.1% of GDP in 2023, still supportive for the MXN. Lower oil prices (relative to last year) will help to reduce the energy goods trade deficit which will likely be mitigated by softer remittances as the U.S. economy is expected to slow. We expect the non-energy trade goods surplus to remain relatively stable, reflecting weaker manufacturing exports which are likely to be mitigated by a slower growth of non-energy imports as internal demand decelerates.