With two consecutive quarters of contraction, Mexico’s economy entered a technical recession at the end of last year. At 5:19 p.m. on January 31, 2022. MEXICO CITY, Mexico (AP) Despite forecasting annual growth of 5% through 2021, Mexico’s economy entered a technical recession at the end of last year, with two consecutive quarters of loss.
Is Mexico in a downturn in 2021?
Manufacturers reacted to supply chain snarls and shortages with a lack of government stimulus, and Mexico’s economy narrowly averted recession in 2021.
How is the Mexican economy currently?
According to Mexico’s Deputy Finance Minister Gabriel Yorio, talk of a “technical recession,” defined as two consecutive quarters of decline, ignores coronavirus-related economic volatility and global supply chain concerns.
Global supply constraints, higher raw material prices, and higher land transportation and sea shipping expenses, according to Yorio, are all impacting on the economy.
“Mexico has joined Brazil in technical recession as a result of its weak Q4 performance, an extremely disappointing result that leaves real GDP in Mexico a whopping 4% below its mid-2019 pre-COVID peak,” said Fiona Mackie, Economist Intelligence Unit’s regional director for Latin America and the Caribbean.
Jonathan Heath, a member of Mexico’s central bank’s board of directors and one of its most outspoken, weighed in on the state of the Mexican economy at the end of last year.
“The assumption that the economy is in a recession because there have been two quarters of negative GDP is a simplification of what a recession is,” Heath wrote on Twitter.
“A recession is more likely if there are two quarters of negative GDP in a succession, but it isn’t enough. A recession must meet three criteria: its depth, duration, and spread. For the time being, we are simply concerned with longevity.”
Given the continued negative trend in investment, Moody’s Investors Service analyst Renzo Merino forecasted that economic growth in 2022 will be lower than the Mexican government’s target.
“Given the possibility of lower revenue performance and increased rigidity in public expenditure, this situation may be replicated in the following years, putting extra strain on fiscal accounts in the remaining six years of (President Andres Manuel Lopez Obrador’s) six-year mandate,” Merino said.
Capital Economics emerging markets economist Nikhil Sanghani was more cautiously hopeful.
“We don’t think Mexico will be able to stay in the red for much longer. Supply bottlenecks look to be lessening, allowing auto production to expand while the output drag imposed by the outsourcing regulation begins to disappear “Sanghani stated.
The recovery, according to Sanghani, will continue sluggish in the coming quarters, owing to recent COVID restrictions and austere fiscal policy.
According to INEGI data, tertiary activities, which make up the service economy, shrank by 0.7 percent in seasonally adjusted terms in the fourth quarter compared to the previous three-month period.
In a research note, Goldman Sachs economist Alberto Ramos claimed that the decline of “the labor intensive tertiary sector (is) a reflection of the impact of the newly enacted outsourcing law, which led to a huge decline in services supplied to corporates, enterprises.”
Primary activities such as farming, fishing, and mining climbed by 0.3 percent, while secondary activities such as manufacturing grew by 0.4 percent.
The economy grew by 5.0 percent for the entire year of 2021, after contracting by 8.5 percent in 2020, the country’s worst recession since the Great Depression of the 1930s.
“The substantial increase in 2021 is more attributable to the mathematical effect caused by the low base of comparison in 2020 than true growth derived from productive capacity,” said Alfredo Coutino, Moody’s Analytics’ head of Latin America analysis.
GDP increased by 1.0 percent in the fourth quarter compared to the same period the previous year, according to figures.
Why is Mexico experiencing a downturn?
Last year, Mexico became the second major Latin American economy to enter recession, due to supply chain constraints and a lack of fiscal support.
In 2021, what kind of economy will Mexico have?
Mexico’s economy is a developing market economy. According to the International Monetary Fund, it has the world’s 15th highest nominal GDP and the 12th largest purchasing power parity. Administrations have improved the country’s macroeconomic fundamentals since the 1994 crisis. After a brief period of stagnation in 2001, Mexico was unaffected by the 2002 South American crisis and maintained positive, if low, growth rates. Mexico, on the other hand, was one of the Latin American countries hardest hit by the 2008 crisis, with its GDP falling by more than 6% that year.
The Mexican economy has seen unparalleled macroeconomic stability, resulting in lower inflation and interest rates, as well as higher per capita income. Despite this, huge disparities exist between urban and rural populations, northern and southern states, and rich and poor people. Infrastructure improvements, modernisation of the tax system and labor legislation, and the elimination of income disparity are among the outstanding challenges. In 2013, tax collections were the lowest among the 34 OECD countries, accounting for 19.6% of GDP. The OECD 37 will have members by 2020.
With rising private ownership, the economy is rapidly expanding contemporary industrial and service sectors. With the goal of modernizing infrastructure, recent administrations have increased competition in ports, railroads, telecommunications, power generation, natural gas distribution, and airports. More than 90 percent of Mexican trade is covered by free trade agreements (FTAs) with more than 40 nations, including the European Union, Japan, Israel, and much of Central and South America, owing to the country’s export-oriented economy. The United States-Mexico-Canada Agreement (USMCA), which went into force in 2020 and was signed by the governments of the United States, Canada, and Mexico in 2018, is the most prominent FTA. Trade with Mexico’s two northern neighbors accounted for about 90% of its exports and 55% of its imports in 2006. Important tax, pension, and judicial reforms were recently enacted by the United States Congress. The oil business is currently undergoing reform. The Forbes Global 2000 list of the world’s largest companies included 16 Mexican companies in 2016.
In 2015, Mexico’s labor force numbered 52.8 million individuals. In terms of annual hours worked, both the OECD and the WTO rate Mexican workers among the world’s hardest workers. The pay for each hour worked is extremely low.
Is Mexico a developing or developed country?
Mexico is one of the world’s 15 largest economies and Latin America’s second largest economy, with a population of almost 130 million people, a rich cultural heritage and variety, and immense natural resources. The country is open to commerce and has robust macroeconomic institutions.
Mexico has underperformed similar countries in terms of growth, inclusion, and poverty reduction over the last three decades. Between 1980 and 2018, its annual economic growth averaged slightly over 2%, restricting progress toward convergence with high-income economies.
The economy shrank by 8.3% in 2020, with a significant decline in the first half of the year as demand and supply shocks from the COVID-19 epidemic wreaked havoc on businesses, employment, and homes.
The rebound in 2021 is robust, and it is dependent on vaccination rates, pandemic dynamics including new varieties, US growth, and labor market recovery. To achieve a better and more lasting recovery in the medium term, the country will need to address some of the most severe pre-crisis growth and inclusion concerns.
What is the severity of Mexico’s economic problems?
Mexico’s economic future is uncertain. Mexico’s economy shrank by 8.3% in 2020, and while the country’s GDP is expected to rebound to 6% in 2021, public policy analysts, economists, and investors remain dubious of President Andres Manuel Lopez Obrador’s policies and intentions for the country. After all, in the third quarter of 2021, Mexico’s GDP shrank by 0.2 percent. Shannon O’Neil, a Mexico expert from the Council on Foreign Relations, was a guest on a recent episode of my program. Her overall grade for Mexico’s macroeconomic health is a “C,” but she gave Lopez Obrador a “F” for his economic stewardship.
What is the state of Mexico’s economy?
Government corruption in Mexico is widespread and costly. According to the Mexican Institute for Competitiveness, corruption costs the economy between 2% and 10% of GDP each year, lowers foreign investment by 5%, and eliminates 480,000 employment in small and medium-sized firms. Because of the scenario, any attempt at true meritocracies is forced to take a back seat, resulting in a significant reduction in Mexico’s skilled labor force.
Is the Mexican economy expanding?
From 1993 to 2021, Mexico’s GDP Growth Rate averaged 0.53 percent, with a peak of 13.80 percent in the third quarter of 2020 and a low of -17.80 percent in the second quarter of 2020.
In 1994, why did Mexico devalue the peso?
The Mexican central bank depreciated the peso by between 13 and 15% on December 20, 1994. The bank also boosted interest rates to counteract the excessive flight of capital. Short-term interest rates climbed to 32%, posing a threat to economic stability due to increasing borrowing costs.