Steeper Contraction Forecasts Make for Hard Reading

The International Monetary Fund (IMF) increased its recession forecast for Mexico today, predicting that the country’s GDP will suffer a 10.5 percent drop, almost 4 percent more than the 6.6 percent retraction predicted in April.

This re-forecasting comes just two days after Banorte’s report, which anticipated a 9.8 percent GDP drop this year. If either case is true, Mexico will be heading for its worst recession for more than a century, including the 7.3 percent recession it suffered in 2009 and the 5 percent GDP drop seen in 1930 at the height of the Great Depression.

The prolonged pandemic has been made worse by the Mexican government’s inability to effectively predict the virus’ peak, which the Ministry of Health has pushed back several times since the original April prediction. Low test rates have also hindered understanding of the spread. Mexico has conducted only 1.67 tests per new confirmed case, almost a thousand times less that Uruguay’s 1,610 tests per new confirmed case and over 10 times less than El Salvador, which carries out 20.13 tests for every case found, says Our World Data.

The scattergun approach has led to cases creeping upwards, in contrast to slowing trend of spread in the majority of other countries. The late government reaction and underwhelming roll out of medical protocol means deaths are still high and that the economic shutdown will have to continue for longer.

The country’s states are now split between “red,” meaning the highest level of restrictions, and “orange”, which allows some activities to restart. Tourist states like Quintana Roo and Baja California Sur are among those reopening, while governors of some states, including Puebla, where several major automotive manufacturers are based, have criticized the federal traffic light system’s schedule.

Banorte’s report makes the situation plain. “In tandem with the rest of the world, Mexico is facing a difficult trade-off between maintaining mobility restrictions to tackle the pandemic and reopening economic activity to avoid a deeper recession,” it points out.

El Financiero reports that according to the IMF’s report, Mexico is among the Top 5 countries in the world where the economy will be hardest hit. The contraction of GDP in Spain and Italy, third and fourth in terms of deaths per capita, is expected to hit 12.8 percent, while the French economy will shrink by 12.5 percent, says IMF.

Regionally, Brazil is set to shrink 10.5 percent in 2020. The country, led by President Jair Bolsonaro is now second in the list of countries with the most deaths. Previously, Bolsonaro had refused to accept the virus as a threat, claiming Brazilians “never catch anything.” After having repeatedly refused to wear a mask, a judge has now ordered Bolsonaro to do so. 

After the recession, Mexico’s economy should grow by 3.3 percent in 2021, reports IMF, assuming the current trends remain.