Mexico’s Central Bank predicts economy to contract by 13 per cent

Mexico’s economy could contract by almost 13% this year, the central bank (CB) warned, after gross domestic product (GDP) data showed the pandemic lockdown had thrown the country into the deepest slump since the Great Depression of the 1930s.

Offering some rays of hope after lowering its economic forecast for the year, the Banco de Mexico suggested in its quarterly report that a recovery could happen more quickly next year than previously thought.

However, even in the bank’s most optimistic scenario, Latin America’s second-largest economy will be smaller at the end of 2021 than it was before the coronavirus hit. “It is too soon to say when we will return to pre-crisis levels,” central bank Governor Alejandro Diaz de Leon said.

The central bank said there was a high degree of uncertainty in providing economic forecasts during the ongoing pandemic, and as such provided three possible economic scenarios.

In the best case, the economy would shrink by 8.8% this year, and rebound by 5.6% next year, the bank said. In the gloomier scenarios, growth would be a meager 1.3% next year.

The government previously estimated a recovery of the Mexican economy to pre-pandemic levels could be reached in one or two years so long as no new coronavirus outbreaks strike. Gross domestic product (GDP) fell 17.1% in seasonally adjusted terms in the April-June period from the prior quarter, data from the national statistics agency showed. Compared with the same quarter last year, GDP contracted 18.7%. Latin America’s largest economy Brazil, by contrast, is forecast to have contracted 9.4% in the second quarter after President Jair Bolsonaro launched a fiscal spending program to deal with the impact of COVID-19. Fiscally conservative President Andres Manuel Lopez Obrador has resisted pressure to borrow to support the economy, while picking fights with some businesses.

“Data for the second quarter confirms the Mexican economy had its worst quarterly decline of the last eight decades, after the crash in 1932 caused by the Great Depression,” said Alfredo Coutino, an economist at Moody’s Analytics.

The pandemic, which has infected 568,621 people and killed 61,450 in Mexico, has hit the Mexican economy harder than those of its Latin American peers due in part to “the absence of stimulus measures to mitigate the effects on companies and families,” said Coutino.

Lopez Obrador insists Mexico is on the right track. “We’re already recovering, workers are already being rehired and we’re going to get out of this without getting over-indebted,” he told a regular news conference on Wednesday.

In a positive sign, Mexican economic activity advanced 8.9% in June from May, apparently confirming the president’s view that the economy “hit bottom” in April and May. The economy contracted 13.2% in June compared to the prior year.

Reuters