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News Article

Banxico's Three Economic Performance Scenarios for 2020

By Gabriela Mastache | Thu, 05/28/2020 - 15:21

According to Banxico, in the best scenario for the Mexican economy in 2020, economic contraction would be at 4.6 percent of the GDP with a recovery in 2021 of 4 percent. However, in the worst-case scenario, in 2020 the country’s GDP would fall 8.3 percent and in 2021 would suffer an additional contraction.

The bank acknowledges that “the COVID-19 pandemic has brought supply, demand and financial shocks at the same time. The fact that the evolution of the pandemic is still in process, both at a global and national level, creates a high degree of uncertainty for any projection of the economic activity of the country.”

Given the uncertainty, Banxico presented not a prognosis but three possible scenarios for the Mexican economy. For these scenarios, Banxico used as a base the first economic previsions it had, where growth between 0.5 and 1.5 percent of the economy was expected.

Scenario 1: V-Shaped Recovery

According to the central bank, the most positive scenario would look like a V, where the most profound economic damages generated by the COVID-19 pandemic are contained to 1H20, while 2H20 would be characterized by a dynamic and rapid economic recovery that would extend to the beginning of 2021 and would eventually settle into a normal rhythm. In this “positive” scenario, Mexico’s GDP would contract by 4.6 percent in 2020 and experience a 4 percent expansion in 2021.

Scenario 2: Deep V-Shaped Recovery

A deep V-shaped recovery would be characterized by a strong economic contraction in the country that would extend to 3Q20. However, for 4Q20 the economy would experience reactivation, which would carry on until 2021. In this scenario, the GDP in 2020 would contract by 8.8 percent, while for 2021 the economy would experience a 4.1 percent growth.

Scenario 3: U-Shaped Recovery

In the worst scenario discerned by Banxico, throughout 2020 the country’s economy would continue to experience the downfall created by the COVID-19 pandemic. The overall weakness of the economy would carry until 2021, when economic activity would slowly start to recover. In this scenario, the economic contraction in 2020 would be of 8.3 percent and in 2021, the economy would experience a further 0.5 percent economic contraction.

According to Banxico, the difference of over 4 percent between the scenarios is the result of the profound uncertainty that exists in the country’s economic panorama. Still, Banxico acknowledges that the economy could either perform better than they expect or even worst. After Banxico published its analysis, President López Obrador mentioned that he respects the central bank and its autonomy but hedoes not believe that its economic previsions are right.

The data used in this article was sourced from:  
Banco de México, El Economista
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst