Mexico Economic Recovery Slows After Huge Fall

The elections in the US, the lack of investment and a possible outbreak of covid-19 are some of the risks facing the economy after showing a partial recovery in employment and production.

Judging by activity in the Mexican capital the countrys economy is picking up Street stalls and small businesses are back.

The traffic does not yield and in the supermarkets the flow of customers seems again heavy But in the closed stores and businesses those that could no longer open after the initial lockdown at the beginning of the year the economic reality of Mexico hides the recovery is losing traction and the rest of the year will be an uphill road

The recovery remains partial and Mexico is not close to returning to the levels of production or income seen last year or in 2018 The country has reached a stage in which growth will be slow and the road is difficult experts agree

In addition Mexico faces several risks including the permanent loss of economic activity as seen in companies and businesses that do not have the financial capacity to reopen

Added to this is the fear of a potential outbreak of covid19 that toughens the measures and moves towards a scenario closer to confinement than to reopening Another factor to take into account is the presidential election in the United States It is possible that this impact Mexico more than any other country in the world due to commercial ties

In September 621000 people joined the economically active population according to the Institute of Statistics and Geography INEGI Of the 12 million people who at the beginning of the coronavirus pandemic lost their source of income 84 have recovered it

Next week INEGI plans to report on the Gross Domestic Product GDP for the third quarter of the year as well as a measure of economic activity in August The figures are expected to show a rebound at least when compared to the previous quarter which saw the hardest drop in its history due to the period of confinement

In those months the automotive construction and mining sectors were reopened and in most states businesses which operate with limited capacity and sanitary restrictions

So far this year foreign investors have sold 337000 million pesos in Mexican government bonds taking their money out of the country and as part of an exodus of funds from emerging countries from the pandemic

The markets have taken refuge in less risky instruments such as for example US Treasuries Despite the fact that Mexico offers a high interest rate compared to other emerging and developed economies in this pandemic the country has lost its attractiveness

Many international investment banks have issued recommendations for the purchase of Mexican bonds says Roberto Iván García Finamex fund manager but investment of foreign capital remains on hold I think they are waiting for the results of the elections in the United States to see if they enter the country or not says García

Important amounts in dollars continue to enter Mexico however On October 10 President Andrés Manuel López Obrador pointed to the remittances sent by nationals in the US to their families in Mexico saying that they are pulling us out of the hole

These money transfers the president assured are the countrys main source of income and are expected to reach 40000 million dollars by the end of the year

Small and mediumsized enterprises SMEs represent 70 of formal employment in Mexico and the lack of government incentives led many of these to close permanently explains Jesús Garza professor at the business school of Tec de Monterrey EGADE and CEO of the financial firm GAMMA

It is unlikely that businesses that did not have the financial capacity to reopen during the third quarter of the year will do so now which implies a destruction of the countrys production and income

This refers to the short term but perhaps more important is the mediumterm recovery and this has to do with gross fixed investment which is the most important component because it really increases the productive capacity of a country says Garza on the phone from Monterrey and well for the moment gross fixed investment has been falling for 18 consecutive months because the drop in confidence comes from before the pandemic

The pandemic exacerbated the problem

The Ministry of Finance estimates that the fall in GDP this year will be 8 and the rebound in 2021 of 4 an optimistic forecast Garza qualifies

By 2021 the specialist expects the country to grow below the historical average of 2 If more resources are allocated to investment this can be left open says Garza Or if resources are assigned to protect SMEs then this could change the landscape but at the moment I see a very slow recovery

Credit rating agency Fitch warned of this slowdown in a report published on October 14 The most recent hard data and survey indicators suggest that the recovery is stabilizing the report says

The service sector faces challenges Retail sales registered only a moderate 55 increase in July and services production fell 9 from January Accommodation and food services have been the most affected sector Fitch says with activity 60 lower than in January

Consumption growth has slowed since June reflecting uncertainty about the coronavirus a slow reopening of the economy and risks to the recovery of the job market the report added The firms forecast for the Mexican economy is a contraction of 108 in 2020 and a growth of 44 next year

A return to the closure of business activities would lead the country from a pause in the recovery to a deterioration The cold and relaxation in distancing measures in Europe led to some outbreaks of covid19 in some cities in Europe so restrictions have been reimplemented and Mexico is not exempt from this possibility.

The Ministry of Health warned on October 16 that Nuevo León Chihuahua and Durango saw important spikes in the cases of covid19 which is why it recommended that the States rethink the confinement interventions.

We have seen how in other countries they are closing activities again and in just 15 days contagions overflowed such is the case of Spain France Germany Italy we do not want that to happen in the City said the head of Government of Mexico City Claudia Sheinbaum in a video on her social networks that same day It is not the time for big parties it is precisely in these social gatherings where we neglect ourselves and the covid19 is transmitted with fatal consequences that we already.

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