UPDATE 1-OECD expects Mexico economy to rebound by 3rd-qtr, growing in 2023

(Adds details from OECD report)

MEXICO CITY, Feb 21 (Reuters) – Economic growth in Mexico is expected to return to pre-pandemic levels by the third quarter this year, the Organisation for Economic Cooperation and Development (OECD) said on Monday.

“Exports will keep benefiting from buoyant growth in the United States, and consumption will grow thanks to an increasing share of the population being vaccinated and the gradual improvement in the labor market,” the OECD said in a report.

The OECD expects Mexico’s gross domestic product (GDP) expanding by 2.3% in 2022 and 2.6% in 2023, after the COVID-19 pandemic and supply chain snags including a shortage of semiconductor chips took a hit on the economy.

The inter-governmental economic group said there was a high level of uncertainty over its projections, with risks including a potential COVID-19 spike, persistent inflation and the possibility of crime increasing.

The OECD recommended that Mexico’s central bank keep raising interest rates in light of high headline inflation, although the group said it foresees that prices will “trend down” throughout the year.

Rising prices hit a two-decade high in December with headline inflation at 7.07%, above the Bank of Mexico’s 3% target.

The OECD also cautioned that concerns over a contentious proposed reform to strengthen state control of the power market has hindered investment that had already been falling since 2019.

“Uncertainty particularly increased following proposals to reform the electricity market,” the report said.

Still, it signaled Mexico could recover investment through clear policy decisions.

“Of particular importance are reforms to provide certainty about existing contracts and regulatory stability,” the report said.

The OECD also expressed concern toward highly indebted state oil company Pemex, saying it remains a “significant risk for the sovereign.” (Reporting by Kylie Madry; Editing by Anthony Esposito, Howard Goller and Grant McCool)