Image credits: Flickr: Banco de México profile.
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Weekly Roundups

Three Different Scenarios for Economic Recovery

By Gabriela Mastache | Thu, 05/28/2020 - 15:37

Mexican exports suffered the worst downfall since 2009. Also, economic performance results are in and while the fall is not as sharp as many expected, it is still the worst fall since 2009. The COVID-19 pandemic also opens up the door to shuffle the Mexican banking sector and Deputy Governor of Banxico, Jonathan Heath, said that the approach the Mexican government is taking will make economic recovery harder.

 

In case you missed it, this is what made the headlines over the week!

  • Banxico presented three possible scenarios for the performance of the Mexican economy in 2020. In the best-case scenario, economic contraction will be at 4.6 percent of the GDP with a recovery in 2021 of 4 percent. However, in the worst-case scenario, in 2020 the country’s GDP will fall 8.3 percent and 2021 will bring an additional economic contraction.
  • Mexican exports reached US$23.38 billion in April 2020, a 40.9 percent fall from April 2019, according to Banxico. The fall is the result of the COVID-19 pandemic and social-distancing measures, as well as the closure of businesses deemed non-essential. According to the report, manufacturing activities that were most hit are the automotive sector; textiles, clothing and leather industry with a 48 percent fall; equipment and electronics with a 25.5 percent drop; professional and scientific equipment decreasing by 22.3 percent and machinery and special equipment for different industries with a 21.6 percent fall.
  • According to INEGI, during 1Q20 the Mexican economy experienced a 1.2 percent fall in a non-seasonal rate and a 2.2 decrease in seasonally adjusted terms compared to the same period of 2019. Despite the fall in the country’s economic activity, in late April INEGI estimated that for 1Q20, the Mexican economy would experience a 1.6 percent fall in a non-seasonal rate. Even though the contraction was not as steep as it was expected, it is the worst performance the Mexican economy has had since 2009.
  • The COVID-19 pandemic will create an opportunity to reshape the Mexican banking sector, with many banks not being able to withstand the consequences of the crisis. This could open the door for many of them to disappear and for many others to consolidate, says a report by consulting firm Akya.
  • Jonathan Heath, Deputy Governor of Banxico, acknowledged that the approach the Mexican government is taking to tackle the economic crisis generated by the COVID-19 pandemic, will make economic recovery even more difficult. “What the president is doing is changing the problem. Instead of having a short recession and then an immense headache with an unplayable debt, he is betting on having a more profound and complicated recession. But once we are out, we will not have the same headache that other countries will have,” said Heath, while arguing that the focus of Mexico is not a solution but rather an exchange of the problem we are facing.
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst