Remittances Increase while GDP DecreasesBy Sofía Hanna | Tue, 05/04/2021 - 14:20
March remittances reached a total of US$4.1 million, a new historical maximum, reflecting a 2.6 percent growth, according to a Forbes article. However, this has been their smallest advance in 11 months.
Remittances are of significant importance to Mexico’s economy, representing 3.8 percent of the GDP in 2020. Last year, remittances were driven by the contraction of the economy but the latest report from the Bank of Mexico indicates that the average amount per operation fell by 2 percent.
During 1Q2021, the country’s GDP fell by 3.8 percent year-on-year, while money transfers rose 13 percent to US$10.623 billion. Alberto Ramos, Chief Economist for Mexico at Goldman Sachs, tells Forbes that “The expectation of continued fiscal stimulus and solid growth in the US should maintain a strong flow of remittances during 2021.”
Mexico depends heavily on remittances and the recent GDP contraction showcases the country’s dependence on this inflow of money, according to BBVA. During Labor, the Mexican Institute of Social Security (IMSS) informed that the country was still missing 2 million jobs, so the local population depends more on the money coming from outside the country.
Juan José Li, Senior Economist at BBVA Mexico, highlights there are three main reasons behind the growth of remittances. First, Mexican migrants whose employment was impacted by the pandemic received economic stimuli from the US government, which helped continue to send remittances to Mexico. Second, “cross-border migrants and ‘commuters’ sent remittances to Mexico, instead of delivering them directly (to other countries).” Finally, April 2020’s exchange rate was quoted at over MX$24 per dollar, “generating incentives for Mexicans residing in the US to send more remittances because every dollar sent became more pesos.”
According to a previous MBN article, Mexicans remain the world’s largest international migrant group, with the vast majority of Mexican migrants – 96.1 percent according to the Mexican government – heading to the US. The reliance on remittances for many families in Mexico remains acute, particularly in states with the highest rate of migrant populations like Michoacan, Nayarit and Oaxaca.