Countercyclical Measures Needed to Brave the Crisis

President López Obrador announced its plan for economic recovery that involves reduced governmental spending and focuses on priority infrastructure programs. Also, Banxico took a step forward and injected MX$750 billion (US$30.4 billion) in to the financial system and reduced the country’s interest rate. COPARMEX has asked for a pact between the private sector and the government and the WTO says that while the fall in exports might be steep in 2020, Mexico has good recovery expectations for 2021.

In case you missed it, this is what made the headlines over the week!

• To ride out the economic impacts of the pandemic, President López Obrador has presented a plan that aims to increase spending in social and priority programs. According to the president, the government will increase spending in social and priority programs by MX$622 billion (US$25.2 billion) to face the current economic recession. However, the plan also contemplates a further reduction of salaries of high-ranking government employees.
• The President’s plan was met with negative reviews by analysts. Rather than reducing spending, experts believe that in times of economic crisis governments should engage in countercyclical measures, increase spending and incur in debt to not have low morale among government employees. Analysts believe that the measures taken by the government will boost the effects that the economic crisis will have in the country.
• President López Obrador was not the only one to present a plan to face the pandemic. Banxico reduced the country’s interest rate by 50 base points, leaving it at six percent. The central bank also announced relief measures for the financial sector of MX$750 billion (US$30.4 billion). These measures are intended to strengthen the channels that are in charge of providing credit and to inject liquidity to the financial system. Both analysts and the private sector received the measures with open arms, with the CCE acknowledging the effort and hoping that fiscal measures would soon follow the announcement.
• COPARMEX has called for an agreement between the public and private sector in order to save jobs and businesses. The agreement proposed by COPARMEX includes an equal part payment of salaries between businesses and the government. The plan also expects to guarantee 100 percent of the salary of all workers that earn between one and three minimum wages. According to COPARMEX, the total cost of these proposal is of MX$94.4 billion (US$3.83 billion) per month.
• Though 2020 is bound to negatively impact trade between countries, WTO says that Mexico will be the country that experiences the most rapid recovery in exports in 2021. According to the WTO, Mexico’s exports to the world will fall by 4.8 percent in 2020. However, for 2021, WTO expects that Mexico will experience a recovery of the same magnitude.