Economic growth could be registered this year in Mexico

The deceleration was global due to the uncertainty associated with the resurgence of COVID-19 infections. The national economy is located in an environment of global crisis. It is uncertain what will happen with the Russia-Ukraine conflict.

Economic growth could be registered this year in Mexico
Mexico's manufacturing and international trade will not return to precovid levels. Image by Gabriel Simon from Pixabay

Although the Organization for Economic Cooperation and Development (OECD) estimates that Mexico's growth in 2022 will be low, at 2.3 percent, it is difficult to make predictions. Furthermore, in the current context of uncertainty, in which it would seem that the pandemic is under control, it is not possible to establish whether the coronavirus will re-emerge, whether there will be new variants or whether the vaccines will work, or what will happen with the Russia-Ukraine conflict, agreed academics from UNAM's Institute of Economic Research (IIEc).

During the round table "Mexico's economic growth 2021 and prospects for 2022", Moritz Alberto Cruz Blanco said that the development of the economy and its sustainability must be achieved through the domestic market, through internal consumption, and "as long as a private investment does not respond, the other option is a public investment".

There are advances that, although insufficient, encourage a vision of where to continue to maintain economic growth. Moreover, it is not a response to the crisis phenomenon, but a policy that has been adopted since the beginning of the current administration. "The aim is to stimulate consumption, to make it grow", he said.

The first aspect to be rescued from 2021 is the 4.8 percent growth, which does not represent a recovery from the steep fall observed in 2020. Although it is not explosive, it is important.

A "rebound" was detected in the second quarter of last year, driven, above all, by the tertiary sector of the economy; it was strong and vigorous, but short-lived, lasting just three months. "It has been said that it slowed down because there was a lack of policies to maintain dynamism, but that is not necessarily true, because the slowdown was global."

The same pattern was observed in the United States: a strong recovery in that period and then a slowdown, reflecting synchronous behavior. "The reason for this has nothing to do with economic policy, but with the uncertainty associated with the resurgence of COVID-19 infections and the emergence of variants of the coronavirus, such as delta and omicron," said Cruz Blanco.

These factors undermined the relative stability that seemed to emerge and established uncertainty again so that activity did not recover and this was associated with globalized inflation, which forced several central banks to take counter-cyclical measures to, in theory, control it.

For the current administration, the ways to stimulate domestic consumption are increasing the minimum wage; transfers to lower-income sectors (support programs for the elderly, the disabled, scholarships for students, etc.), and public investment.

The latter, according to the Federal Expenditure Budget, will reach 3.1 percent of the gross domestic product (GDP) this year, the highest amount in the last 10 years; its priority is the connectivity of regions by land and air through projects such as the inter-oceanic corridor of the Isthmus of Tehuantepec, the Tulum airport or the Mexico-Toluca interurban train, for example, which should have effects such as the generation of employment.

In his participation, Arturo Ortiz Wadgymar added that the pandemic was a factor that determined the decrease in economic activity in the second half of last year. Despite factors to the contrary, GDP growth of almost five percent, whether we call it a recovery or a "rebound," puts us in the positive quadrant.

"That seemed little to some, who thought that we had to grow at seven or eight to reach previous levels, but they forget that there is an international crisis and a pandemic with two variants of the virus that affected the possibility of a higher growth of the economy", the specialist pointed out.

It is uncertain to know what is going to happen with the Russia-Ukraine issue; it is unreasonable to make projections on an aspect that we cannot control; the costs that this war may have are not reliable either. Internally, we do not know what is going to happen; the electricity reform, for example, is still pending.

Mexico has faced a world economic recession and a pandemic. Even so, 2021 "was not as bad as some would like to make it seem". There is a possibility that in 2022 there will be clear growth, not as high as five percent, "but 2, 2.5, or 3 would be reasonable".

Gerardo Minto Rivera, the moderator of the remote session, explained that we are in a moment of national and international crisis. In 2020 the Mexican economy had its pronounced contraction; the GDP plummeted due to the still present issue of the pandemic. If we add to that Russia's military invasion of Ukraine, "there will be an impact on the national economy, whether we want it or not".

Organizations such as the International Monetary Fund and the World Bank established that the effects that the Russian invasion will have on the world economy are unknown; "there are many elements that place the national economy in an environment of global crisis", he concluded.

IMF recognizes Mexico for maintaining economic stability

The International Monetary Fund (IMF) recognized Mexico for "satisfactorily maintaining economic stability in a challenging period" such as covid-19, but also pointed out that the pandemic has had a "humanitarian, social and economic" cost for the country. The organization pointed out that the government of President Andrés Manuel López Obrador continues to privilege Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) through the electricity reform, which they considered "is affecting the investment climate".

Almost a month after revealing a first version of the document on Mexico's economic situation -a process it carries out with each of the Fund's member countries on an annual basis-, the IMF reiterated that "the Mexican economy is recovering from its worst recession in decades", after contracting 8.3 percent in 2020. It stressed that the recovery is driven by U.S. growth and the pandemic-related sectoral reopening. It is estimated that the Mexican economy will grow by 6.2 percent this year and 4 percent in 2022.

"Executive Directors broadly agreed with the thrust of the IMF staff assessment. They commended the authorities for successfully maintaining economic stability during a challenging period, underpinned by very sound macroeconomic policies and institutional policy frameworks," it said. Despite the recovery, which saw new waves of covid-19 and supply chain constraints, Directors "underscored the need to safeguard the recovery and promote stronger, more inclusive, and greener growth."

IMF Directors saw merit in additional well-targeted fiscal support through the use of available fiscal space for health and education, social safety nets, and public investment. Some of the Directors considered that the conservative approach to containing public debt was appropriate. They stressed that it is important to improve spending efficiency and contain the projected increase in pension spending. The IMF recognized the efforts to combat tax evasion, as this strategy of President López Obrador has contributed to higher revenues.

In the face of inflationary pressures, which they noted as temporary, they recommended "a gradual, data-driven pace of policy normalization that carefully balances supporting the recovery with keeping medium-term inflation expectations well anchored." In the energy sector, the IMF noted that electricity reform has an impact on the investment climate. "A proposed constitutional amendment seeks to reform the institutional framework underpinning electricity generation, including significantly enhancing the role of the CFE, limiting private participation, and dissolving regulatory bodies that oversee the competition and permitting," it said.

"It, therefore, seeks to reverse energy sector reforms and is likely to increase costs and hinder competitiveness," it commented. It could also further complicate Mexico's compliance with its climate change mitigation commitments," it added. It reiterated its call for reform of Pemex's business strategy and governance. The final report highlighted that the humanitarian, social, and economic cost of the pandemic that Mexico is assuming is very onerous, as the number of deaths from covid-19 is estimated at more than half a million, while underemployment remains at high levels and poverty has also increased.