The conflict complicates the outlook for central banks, under even more pressure to raise interest rates.

After Russia launched military operations on Ukrainian territory, the impact of this conflict on Mexico could have several dimensions: on the one hand, the rise in oil prices would benefit Petróleos Mexicanos (Pemex), but public finances would be hurt by gasoline subsidies.

The director of economic studies at Citibanamex, Alberto Gómez Alcalá, noted that the economies of Russia and Ukraine are not large enough in terms of trade and financial flows to have a major repercussion, so the strongest impact would come from potential financial contagion.

“It will depend on the duration of the conflict, which we hope does not escalate further; as always happens in these situations, there can be three main channels of impact: trade, financial contagion through risk aversion in the global portfolio, and the impact on commodities,” he stated.

According to the specialist, in the first instance the price of gas is rising, as is the price of oil, so this is good news for Pemex in terms of crude exports.

However, it is “bad news for public finances because of the gasoline subsidy, and since there is a subsidy on gasoline prices, we feel the inflationary impact will tend to be smaller; it will be concentrated in short-term good news in revenue for Pemex and a larger burden on public finances due to the gasoline subsidy, with little impact on inflation and on Mexicans’ pockets,” said Gómez Alcalá.

He also commented that the war complicates the scenario for central banks, under even more pressure from the increase in benchmark interest rates and the role they must play over the coming months; but for now, the direct impacts will be concentrated in neighboring economies, and their global spread will depend on the duration of the conflict.

Source: Forbes