The growing impact of coronavirus on Mexican economy

According to the Organization for Development and Economic Cooperation (OECD), Mexico's GDP will fall by 8.6% if there is a resurgence of Covid-19 and 7.5% if it is avoided. According to a press release, the agency said that this forecast is due to the blow received in the tourism sector, exports and the fall in oil prices, one of the most serious effects on the country's economy.

The increasing impact of Covid-19 on Mexican economy
The increasing impact of Covid-19 on Mexican economy

"The poor and vulnerable, including informal workers, will be the most affected by the recession," said the OECD in its Economic Outlook, Volume 2020 Issue 1.

Mexico has implemented a wide range of financial and monetary measures to address the crisis. Fiscal space is limited but, given the severity of the recession, additional measures are warranted, as they will increase to mitigate hardship and revitalize recovery. Such measures should focus on providing affected workers, in both the informal and formal sectors, with income support and preventing the disappearance of enterprises.

Mexico is experiencing a widespread emergency, considering that most cases of contagion from the new coronavirus were reported in Mexico City, the State of Mexico, and Baja California. The OECD stressed that in the country there is a marked inequality in access to health services, although it is especially optimistic with the younger population.

Those living a complicated situation are businesses such as casinos, which are still not authorized to open their doors, as other establishments have been doing with a limit of 30% according to information published by websites. Only at the beginning of this year, President Andrés Manuel López Obrador announced that there would be no authorizations for new casinos in Mexico.

He was emphatic in stating that casinos were not allowed. "No casinos, let's be clear, in the whole country. There was a change, people voted for change, we are not the same," he said. He also indicated that this is the competence of the federal government, and as such, any attempt by a local government not to abide by this mandate would be illegal. Immediately, many representatives of this industry showed their disagreement in different states.

Due to the paralysis of international trade and non-essential activities, as decreed by the government on March 30, the industrial activity would fall 8.5% this year and almost 1 million jobs could be lost, predicted the Institute for Industrial Development and Economic Growth (IDIC).

President Manuel Lopez Obrador promised a rapid economic recovery with the entry into force on July 1 of the new trade treaty between Mexico, the United States, and Canada (T-MEC). Meanwhile, he said he was confident that he had "tamed" the pandemic and that the economic crisis in Mexico "will be transitory".

Mexico had some weaknesses that were accentuated by the emergence of this pandemic and also by the fall in oil prices. Government measures are becoming urgent to rescue a financial sector that has already been hit hard enough by these weeks. This would explain the recent decline in the sovereign rating of Mexico and Petroleos Mexicanos (Pemex) by Moody's, Fitch Ratings and Standard & Poor's.

Mexico and Ecuador will be the hardest hit

The economies of Mexico and Ecuador will be the hardest hit in Latin America this year by the crisis of the coronavirus pandemic, which will affect supply chains and internal and external demand in the region, among other factors.

The economic activity of Mexico and Ecuador will contract by 6.6% and 6.3%, respectively, due to the "isolation, blockade and widespread closures required to stop the spread" of the coronavirus, which is causing a "serious effect" on the global gross domestic product (GDP), according to the World Economic Outlook report presented Tuesday by the International Monetary Fund (IMF).

Overall, the economy of Latin America and the Caribbean will shrink by 5.2 % this year due to the impact of the current health crisis, a deeper decline than that of the world economy, which will fall by 3 %. The high level of informality (of the Latin American economy) makes it much more difficult to address this crisis.

The region will be affected this year by the "isolation, blockade and widespread closures required to stop the spread" of the coronavirus, which is having a "serious effect" on economic activity in all Latin American countries and globally.

In addition to Mexico and Ecuador, Brazil (5.3 percent), Argentina (5.7 percent), Chile (4.5 percent) and Venezuela (15 percent) will also see their economies shrink. Those who will least notice the drastic reduction in economic activity in 2020 will be Paraguay, with a 1% retraction; Colombia, with 2.4%; and Bolivia, which will register a 2.9% drop. The GDP of Central America will fall this year by 3%, and that of the Caribbean countries by 2.8%, according to new forecasts by the multilateral credit agency.

Compared to other regions of the world, Latin America will cope better with the coronavirus crisis than the European Union, which will fall by 7.5%, and North America, which will fall by 6%; but it will perform worse than Asia and sub-Saharan Africa. Despite this year's general decline, the multilateral institution predicted a partial recovery of Latin America in 2021, when its economy will advance by 3.4%, it calculated.

That recovery next year will be led, according to forecasts, by Chile and Peru, with increases of 5.3 % and 5.2 % of their GDP, respectively. The region's largest economies, Brazil, Mexico, and Argentina, will register smaller increases in 2021, 2.9%, 3%, and 4.4%, respectively, according to these forecasts.

Globally, the Fund's forecasts point to a gradual recovery in 2021, as the pandemic is contained, with an estimated growth of 5.8%.

By MexicanistSource: Quadratin