Job Losses Pass One Million, Government Budget to Suffer

The 1,113,677 jobs so far claimed by the COVID-19 pandemic in Mexico, according to the latest figures released by IMSS, have eclipsed President Andrés Manuel López Obrador’s prediction the country would lose 1 million jobs due to the virus. Now, with job losses mounting and more support needed, experts are suggesting COVID-19 may make it hard for the government to make ends meet.

These job loss figures are the highest the institute has reported since it began keeping records and they surpass the losses seen during the Mexican financial crisis of 1995 when the peso experienced a sudden devaluation against the dollar and a capital flight ensued.

In May, US job losses passed 40 million, while in April the International Labor Organization predicted that worldwide job losses would hit 175 million during the crisis.

Our latest analysis shows that the impact of the #COVID19 pandemic far exceeds that of the 2008-2009 financial crisis. Workers and businesses face catastrophe without urgent, coordinated measures by governments. https://t.co/bsDO6IhXqp

— International Labour Organization (@ilo) April 8, 2020

With fewer formal jobs, fewer taxes can be collected and public spending may well fall as a result. Despite the MORENA party’s politically-left mandate, the government has persistently said it will not increase national debt to face the crisis and, unlike most other world economies, has not rolled out a significant financial aid package to support MSMEs, which generate the bulk of employment.

Experts now predict that the crisis will cause serious difficulties with budget revenues. In April, government pre-budget income fell by 19 percent. In May, it fell by 23.1 percent, representing an accumulated annual loss of 3.1 percent. James Salazar, Deputy Director of Economic Analysis at CI Banco, told El Economista that in contrast to Minister of Finance Arturo Herrera’s tick-shaped recovery prediction, “we will not see sustained growth, but we will see more ups and downs each month.”

CI Banco predicts a contraction of between 15 percent and 20 percent for 2Q20, while the Mexican GDP will fall 9.5 percent by the end of the year, above the Ministry of Finance’s -3.9 percent worse-case scenario and that of Banxico’s formal 8.8 percent prediction.

Other experts have pointed out that Mexico’s major industries have already reopened and will crank up production as COVID-19 cases in Mexico drop. Currently, cases are still rising and hospitals are being overwhelmed, while countries around the world reinstate lockdowns following new virus outbreaks.

But whether there are outbreaks in Mexico or not, the government’s financial situation remains complicated. "Regardless of whether the worst-case scenario (of a resurgence) does not occur, the government will fall short of what was programmed and budgeted in income and expenditure,” Salazar said.