How will the U.S. economic plan benefit Mexico?

This is how the stimulus of the U.S. economic plan will indirectly benefit Mexico, especially in exports.

How will the U.S. economic plan benefit Mexico?
Photo by Emilio Takas / Unsplash

The ambitious stimulus plan for 1.9 trillion dollars approved in the United States (US) will also benefit Mexico with the increase of up to 1% of the Gross Domestic Product (GDP) thanks to a rise in exports or the increase in remittances, essential for millions of families.

This is what the Organization for Economic Cooperation and Development (OECD) estimates, an organization that calculates that the package will mean an injection of between 3 and 4 points of its GDP for the United States in the first year, while Canada and Mexico, its neighbors, will experience a boost of between 0.5 and 1 percentage point.

"Mexico benefits indirectly from this new package," explained Gabriela Siller, director of economic analysis at Banco Base, since the support will also "stimulate consumption and investment" beyond the borders of the country presided over by Joe Biden.

Increase in exports

"From the United States they will buy more products from abroad, among which are Mexican products", described Gabriela Siller, an expert in economic issues of Grupo Base, so her financial group estimates a growth of 18% in Mexican exports for this year.

The relevance of the economic relationship between both countries lies in the value of 550 billion dollars (MDD) that reached the commercial exchange between Mexico and the United States in 2020, according to preliminary data from the Ministry of Economy.

The professor of economics at the National Autonomous University of Mexico (UNAM), José Ignacio Martínez, clarified that the main beneficiaries will be the "manufacturing and automotive" industries, those with the greatest interconnection with the United States.

"The export sector represented in the GDP has an impact of 37%," Martinez recalled, so that "a growth in the U.S. economy would be reflected in the growth of exports and, therefore, in the GDP."

The academic's calculations, however, were more cautious: his projections contemplate a 10% growth in Mexican exports (80% to the United States).

More remittances

Mexico's other major benefit from Biden's plan -which includes direct aid of 1,400 dollars and unemployment benefits and payments of up to 3,600 dollars for each child in poor households- is the increase in the money that migrants send home to their families from the United States.

The chairman of the board of directors of Banco Azteca and until Friday president of the Association of Mexican Banks (ABM), Luis Niño de Rivera, pointed out that the aid in the United States could lead to new records in remittances.

"They are implementing a new support and stimulus package and that gives us a guarantee that remittances will continue with an already irrefutable proof, which is the month of January", he pointed out, about the almost three thousand 300 million dollars received in the first month of 2021.

Mexico entered a record of 40 thousand 606.7 million dollars from its citizens residing abroad in 2020, an increase of 11.4% over the 36 thousand 438 MDD of 2019, despite the COVID-19 pandemic.

In addition to the direct income implied by remittances, Gabriela Siller pointed out, "remittances favor consumption in the states considered the poorest in Mexico".

Improved forecasts

The general manager of BBVA Mexico, Eduardo Osuna, stressed that his projections for Mexican GDP growth in 2021 now stand at 3.2%, but will improve due to the effect of the stimulus plan in the United States, among other factors.

"Probably in a week we will be changing the projection to be higher, among other things because of the American support plan and the evolution of the vaccination plan that we are seeing in the United States," he said.

The President of Mexico himself, Andrés Manuel López Obrador, assured on Friday at the ABM Banking Convention that the economy will grow "at least 5 percent". Along the same lines, last week the Bank of Mexico predicted a 4.8 % increase in GDP, even though the vaccination plan against COVID-19 is progressing slowly.