Economic Recovery Will Take More Than A Few Months, Experts Say

The COVID-19 pandemic has created momentum for digital payments and while the CoDi implementation came to a halt because of the pandemic, experts believe that in few months it will experience important growth. Also, the Mexican economy reaches historic minimums, while the Ministry of Finance and Public Credit predicts a V-shaped recovery.

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

• For Arturo Herrera, Minister of Finance and Public Credit, economic recovery in Mexico will not be in the shape of a V or a U like Banxico estimated. Herrera says it will have the shape of a famous sneaker brand: a sort of v with an extended side. According to Herrera, out of all the models that have been presented by economists around the world, the one that makes more sense is the V-shaped model. The minister’s reasoning is that if all governments collectively decided to shut down the economy, opening up all economic activities would lead to a symmetric impact. For Herrera, Mexico will experience a rapid but asymmetric recovery.
• Despite the criticism, in an interview with newspaper El Universal, Herrera remains confident that the economy will start recovering soon. “It will be a few months to recover what has been lost. There are diverse characteristics of this crisis that make it notoriously different and one of them is how abrupt this is.”
• According to specialists polled by Banxico in May 2020, in 2020 the economy will probably experience an 8.16 percent contraction, up from the 7.27 percent contraction that was expected in April. Though for 2020 the expectations between the April and May polls are fairly similar, in May expectations went down 0.01 percent going down from 2.52 percent growth to 2.51 percent growth.
• For Gabriel Casillas and Alejandro Padilla, Economists from Grupo Banorte, macroeconomic stability does not necessarily lead to more growth nor does it reduce inequality. Moreover, according to them, for economic growth to happen, the country needs to strengthen rule of law and implement public policies that lead to better income distribution. In their podcast, Norte Económico, Casillas mentioned that the key to a better income distribution lies in a “profound and integral fiscal reform.” As an example, both economists mentioned the Chile case, a country that has experienced superior growth rates thanks to a solid rule of law but that also continues to experience social inequality. For Mexico to grow more, it needs a solid rule of law, says Padilla. But that will not lead to a direct reduction of inequality.
• In light of the COVID-19 pandemic, the Mexican banking sector and its users have resorted to the use of digital channels to perform financial operations. The current and future use of digital channels have already spurred investment in fintech companies. Alejandro Díaz de León, Governor of Banxico, said last Thursday that before the government-led social distancing campaign began, there were 127 SPEI participants that had showed interest in the implementation of CoDi.
• According to INEGI, the COVID-19 pandemic has left 12 million Mexicans without income. INEGI says that the rate of economic participation in the country registered in April 2020 of 47.4 percent meant a 12.3 percent fall from March, which obeys to the important number of people that have lost their job during the pandemic.