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News Article

IMF Sees Mexican Outlook Improve

By Peter Appleby | Tue, 10/13/2020 - 15:17

The International Monetary Fund today released a report revising the severity of Mexico’s economic contraction and offers warnings on the risk that the country and Latin America still face. The report, titled “A Long and Difficult Ascent,” now predicts that Mexico will see a 9 percent contraction in 2020 compared to the 10.5 percent contraction forecast in June. The recovery for 2021 is also predicted to be at 3.5 percent growth rather than the 3.3 percent previously forecast.

The Latin American region also saw its economic forecasts improve slightly, up to -8.1 percent for 2020 from -9.4 percent predicted in June, while 2021 will see growth of 3.6 percent, a downward revision of -0.1 percent. The global contraction for 2020 is set at 4.4 percent, an improvement on the previous 5.2 percent contraction stated in the previous report.

The report highlights IMF’s “positive surprises” and concerns, including the ongoing spread and increase in positive COVID-19 cases which has seen many countries in Europe enforce large-scale restrictions on movement again.

The IMF noted that in countries ”where the pandemic continued to spread (such as Mexico)”, 2Q20 was “weaker than projected.” The report also issued caution to countries that have weak national health systems, including many nations of Latin America, or those who relied on heavily-affected industries like tourism.

While remittances entering Mexico have increased over the course of the pandemic, against analysts’ expectations, the increasing reliance on them could signal problems within Mexico’s own economy. According to the report, “the greater dependence on external finance, including remittances” is one of the reasons why “prospects continue to remain precarious.”

The country’s economic recovery will also be tied to that of the US, which also had its growth forecasts revised. The IMF now believes the US economy will contract 4.3 percent rather than 8 percent, 3.7 percent less than predicted in June. In 2021, the country will see 3.1 percent growth, the report says.

The US is gearing up for one of its most divisive elections in memory on Nov. 3, while the question of further federal aid to buffer the economy from further COVID-19 damage is still being argued over.

Pablo Porro, Director General of Western Union Mexico, told Mexico Business News recently that the US held an important role in the lives of many Mexicans reliant on remittances sent by family and friends working across the border. Of the US$36 billion in remittances arriving in Mexico last year, US$28 billion came from the US. “Though Mexico ranks third globally in terms of inflow, the outflow of remittances from the US into Mexico is the single-largest cash corridor globally. Remittances are more important for Mexico than the entire tourism industry,” said Porro.

Remittances, he continued, have proven to be recession proof. “But this is an unprecedented financial and economic crisis […] The return of economic performance and spending levels cannot be anticipated at present.”

The full interview can be read here.

Photo by:   Nan Palmero, Flickr
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Peter Appleby Peter Appleby Journalist and Industry Analyst