A Nike-Shaped Recovery? Not Very Likely, Experts Say

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.

In 5-minute video, Herrera said that economic recovery goes hand in hand with employment recovery and well-being of the population. This comes at a time that has been particularly difficult for businesses and the economy. 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.

Herrera mentioned that both the government and citizens were not passive actors in the country’s economic recovery. While citizens must comply with sanitary measures, Herrera says that the government has a larger role in reactivating the economy. Among the measures that are being implemented, Herrera mentioned:

• Reactivating public expenditure, meaning that planned expenditure that was scheduled for October and November has been moved forward. This expenditure will go toward projects with greater absorption capacity, meaning those that have the capability of translating initial investment into jobs and more investment. For Herrera, the Santa Lucia Airport and the Dos Bocas refinery fall in this category.
• Ensuring that financial institutions have the needed resources to finance other projects in the near future.
• Focusing on reactivating key sectors that have the capability of boosting the rest of the economy. For Herrera construction and international trade are these two sectors. Moreover, these are sectors that are linked to the US’ productive chains.
• USMCA’s enforcement.

Though Herrera seemed confident on the scenario proposed, experts are not so sure about it. Enrique Quintana, Editorial Director General of El Financiero, mentioned in his daily collaboration in the newspaper that while Herrera’s scenario was an option, it was not the most plausible scenario. According to Quintana, the current circumstances of the Mexican economy will probably draw us closer to the U-shaped scenario proposed by Banxico last week.

Among the factors that Quintana mentions that make it harder to define the shape the country’s economic recovery are the lack of knowledge regarding the duration of the pandemic, the performance of the US economy, the lack of local stimulus (Quintana says that the governmental expenditure and bank liquidity will not be enough) and the loss of confidence from the private sector.

Other experts also doubt that the Mexican economy can follow the trajectory presented by Herrera. “If there is no certainty for investment, there will not be any growth. Even in China, where there is a single party that controls and regulates, the rules are clear. The problem here is that it is not clear where we are going, something the Minister of Finance has yet to say,” said Jorge Sánchez Tello, Director of Applied Research of Fundef.

Francisco Suárez Dávila, Former Deputy Minister of Finance and Public Credit between 1982 and 1988, said that more than a V-shaped recovery, the country should brace for a sever crisis if the government refuses to implement an economic program for recovery and acquire more debt. For Suárez, the economy can experience an L-shaped trajectory.