Remittances to Mexico reach near record high in June, but weakened impact due to strong peso.
Remittances to Mexico reach near record high in June, but weakened impact due to strong peso.
Remittances to Mexico Slightly Below Record High Due to Peso Appreciation
Image Source: Reuters
Mexico City, Aug 1 (ANBLE) – Remittances to Mexico remained robust in June, totaling $5.57 billion, slightly below the all-time high reached the previous month. However, the sharp appreciation of the peso against the dollar dampened the impact of these remittances in real terms.
In June, remittances, which are the money sent home from Mexican workers abroad, increased by 8.3% compared to the previous year, as reported by the country’s central bank. However, when measured in pesos, remittances actually declined by 6.2% year-over-year, according to Alberto Ramos, an analyst at Goldman Sachs.
The significant strengthening of the peso by more than 15% against the dollar from June 2022 to June 2023 has been attributed to higher interest rates and the phenomenon of “nearshoring.” This refers to the relocation of manufacturing operations from Asia to Mexico. While this appreciation is undoubtedly positive for the overall economy, it presents some challenges for Mexican communities heavily reliant on remittances from the United States.
The appreciation of the peso has led to a decrease in real purchasing power for those receiving remittances in Mexico. As a result, some communities have had to tighten their spending. On the other hand, Mexican workers in the United States have attempted to send more cash home to help mitigate the impact of the currency appreciation.
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Despite these challenges, the June increase in remittances allowed Mexico to achieve a quarterly record of $16.3 billion, surpassing the previous record of $61.2 billion over a 12-month period.
Mexican President Andres Manuel Lopez Obrador has expressed optimism about the country’s remittance inflows, expecting them to exceed $60 billion in the calendar year. In the first half of 2023, remittances reached $30.2 million, underscoring the continued importance of this source of income for many Mexican families.
However, looking ahead, the recent economic moderation in the United States may lead to a slowdown in remittances to Mexico in the coming quarters, as pointed out by Alberto Ramos.
In summary, despite the challenges posed by the peso’s appreciation against the dollar, the flow of remittances to Mexico remains strong. The resilience of this source of income is crucial for many Mexican households, and while the appreciation of the peso may have short-term effects on purchasing power, overall economic growth and the rise in remittances are positive indicators for the country’s economy.
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