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News Article

BBVA’s Mexican Economic Outlook 2021-2022

By Sofía Hanna | Tue, 05/25/2021 - 14:51

BBVA released its “Mexico Economic Outlook 2021-2022,” which is based on its 2021 GDP growth forecast, the outlook for formal job creation, the temporary rise in inflation and the 2022 General Economic Policy Preliminary Guidelines that were released this year. The bank also warned that the increase in inflation is temporary due to transitory factors. 

 

BBVA Research’s latest report revised its previous GDP growth forecast for 2021 from 3.2 percent to 4.7 percent in part due to a larger boost from the US’s dynamic growth. The report mentions that this growth set off a strong start for the years’ economy and BBVA anticipates “a 4.2 percent annual growth for private consumption (reaching 93 percent of its pre-COVID-19 level by the end of the year), while we expect private investment to increase 3.5 percent year-over-year (YoY), reaching 83 percent of its pre-COVID-19 level by year-end. Exports would grow 14.0 percent YoY, exceeding its pre-COVID level by 4.0 pp.” Despite this positive outlook, the reports points to some concerns caused by the uncertainty that has been arising from recent policy decisions. 

The outlook also addresses formal job creation, mentioning that there has been an improvement in the generation of new jobs but there are no expectations to return to pre-pandemic employment levels until 2022. “In spite of a (slow) recovery trend, the labor market is still showing elevated levels of contraction in YoY terms in 1Q2021; besides, the gradual recovery has been marked by high levels of informality, underemployment and critical employment conditions. Also, a concerning development in 2021 is the loss of higher-income jobs that started at the turn of the year.” 

The temporary rise in inflation is the report’s third key point. Banxico mentioned that this phenomenon should be looked at carefully as it could be a reflection of the spike in energy prices. This rise in inflation leads the BBVA to forecast that “inflation would have peaked in April, and as the transitory effects unwind, we think that the headline inflation rate will drop down to slightly above 4.0 percent levels in 3Q2021, before rebounding temporarily again in 4Q2021 to above-4.5 percent levels. Core inflation is set to gradually fall to below 4.0 percent levels in the next few months.” 

Finally, the 2022 General Economic Policy Preliminary Guidelines released by the Finance Ministry anticipate an improved outlook for public finances in 2021 and mention that it expects public debt to remain stable in 2021-22. However, debt could increase to a manageable 56 percent by 2026 if no fiscal reform were implemented in 2022. In terms of GDP, the expectation is for the GDP to grow 3.6 percent in 2022. 

The data used in this article was sourced from:  
BBVA
Sofía Hanna Sofía Hanna Junior Journalist and Industry Analyst