When Will Countercyclical Fiscal Policies Begin in Mexico?

For most analysts, there is no question about the upcoming global recession. The question lingering in the air is how long it will last and how serious it will be. Many believe that the crisis will be worse than the 2008-2009 recession, albeit shorter.

Different countries have already taken steps to ensure that their economy will resist the crisis. Fiscal incentives for individuals and companies and lines of credit for businesses have been among the first measures in countries like Australia, while the ASEAN community has already rolled out defined incentives for their economies to navigate the crisis. The US is in the midst of a negotiation to accelerate the approval of its own stimulus package.

However, Mexico still needs to define the country’s economic and financial roadmap toward the upcoming economic crisis. According to the Institute of International Finance (IIF) Mexico is one of the countries that would be the most impacted by the crisis. Analysts estimate that the Mexican economy will contract in 2.8 percent. However, they warn that the fall could be even worse because of the weakness of the Mexican economy and the recession the US will experience.

In this scenario, a delay in the definition and implementation of countercyclical fiscal policies would lead to a deeper recession, according to Pantheon Macroeconomics. The consulting firm says Mexico’s GDP is expected to experience a 5 percent contraction in 2020, which already considers the effect of the cancellation of the Constellation Brands brewery in Mexicali.

As an example of what other countries have been doing, Indonesia recently approved its second emergency stimulus package worth US$8 billion. This package provides fiscal and non-fiscal incentives as well as a stimulus for SMEs. Other incentives include a reduction in corporate and personal income tax, as well as non-fiscal incentives for import and export activities. Singapore has already introduced incentives for businesses affected in its 2020 state budget. In Malaysia, the country has made credits available for SMEs that aim to digitalize their operations or boost their growth. The Malaysian government has also announced the implementation of a public tender for the development of a solar power plant later in 2020. In the US, President Trump has announced that the Senate is working on a tax relief measure in addition to a US$8.3 billion spending package that has already been signed.

Meanwhile, in Mexico, President López Obrador has announced that large companies will not receive any tax breaks nor fiscal exemptions and that the government will focus on cash handouts for those in a vulnerable situation.