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News Article

COVID-19 Reduces Trust and Growth Expectations in Mexico

By Gabriela Mastache | Mon, 05/04/2020 - 12:47

Analysts consulted by Banxico expect the economy to contract 7.27 percent in 2020, far lower than the 6.6 percent that the IMF had forecasted in its early April report. The 7.27 percent is also lower than the previously expected fall of 3.99 percent presented in Banxico’s March poll. However, expectations for the future have improved. For 2021, analysts expect the country’s GDP to grow 2.52 percent, an increase from the 1.88 percent that they reported in the previous poll.

According to IMEF, during April 2020 the country’s economic activity experienced a further contraction. IMEF’s manufacturing indicator experienced a 3.7-points reduction in April, for a total of 40.5 points, which puts it well in the contraction zone. According to IMEF, any measurement below 50 points represents a contraction in manufacturing activity. This is the 12th month in a row that the country’s manufacturing activity experiences a contraction.

Also, IMEF’s non-manufacturing index registered in April a 3.2-point fall for a total of 35.5 units. This was also the third month in a row with a contraction in this index. According to IMEF, these results indicate that the current economic fall will be steeper than the one the country experienced in 2009. “(The crisis) will have a larger impact on employment, since the non-manufacturing sectors, which include services and trade shows, will see a more accelerated weakening than the manufacturing sector,” says IMEF’s report.

The IMEF report also mentions that the return to reality will be far slower than expected. Though the economy will reopen in phases, IMEF says that consumers will be wary of acquiring durable goods and investors will be wary of starting new projects.

Trust from business owners in April 2020 has already registered a decrease. According to INEGI’s Monthly Poll of Businesses Opinions, in April 2020, the trust of business owners experienced a 7-point reduction in a single month. According to INEGI, this is the lowest level than the indicator has reached since 2011. Also, the indicator showing the expectation for a good investment environment was the one that took the heaviest blow. Among business owners in the manufacturing sector, the biggest concerns are production, exports and used plant capacity. For business owners in the construction segment, their biggest concern is the expected value of future construction projects. For business owners in the commercial sector, the biggest concern is overall sales.

As if internal economic concerns were not enough, international stock exchanges are experiencing losses from the fear that a new trade war might be on the making after President Trump and Mike Pompeo, US Secretary of State, accused China of creating the COVID-19 virus in a lab. Investors fear that the accusations from the US will lead to more commercial sanctions to China, which would increase the uncertainty and instability the current international environment is experiencing.

The data used in this article was sourced from:  
Banxico, El Economista
Photo by:   Pixabay
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst