Inclusive Economics Could Support Mexico’s Recovery

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A year into the pandemic, the Mexican economy is beginning to show recovery signs driven by the reopening of activities and the vaccination process. This growth, however, has not been evenly distributed, said Ángel García-Lascurain Valero, President of the Mexican Institute of Finance Executives (IMEF) on the first day of the Mexico Business Forum 2021 Virtual Edition. “There are areas of the country where the population still does not have access to basic services such as food, housing, health or education. There has been only a marginal improvement and the percentages of inequality are still large,” he noted. 

In 2Q2020, Mexico's GDP fell 19 percent compared to the same period in 2019. The GDP was also dragged down by a decrease in investment prior to the pandemic due to the change of government, said García-Lascurain. According to IMEF, the main factors that generated this decrease were the reduction in private investment, the erosion of the relationship between the public and private sector and the reallocation of public spending to social and infrastructure projects. “The government could not compensate for the fall in investment because of this," said García-Lascurain. “The country's decades-long and generations-long effort to build the economy collapsed from one month to the next”. Within the activities that make up the economy, primary activities comprising industries such as agriculture and mining remained relatively constant in growth. Secondary activities comprising services such as restaurants and shops slumped by almost 26 percent, while tertiary activities such as industry fell by 16 percent, he said. 

Countercyclical measures implemented by countries, such as fiscal support or direct capital transfers to businesses and households, played a key role in lessening the impact of the pandemic, said García-Lascurain. In 2020, almost 18 percent of the UK’s economy consisted of resources that its government injected into businesses and households. France injected 15 percent and Germany 14 percent. While Latin American countries such as Brazil injected 4 percent into their economy, “in Mexico we did not have that support. There were not enough measures to preserve jobs, support the liquidity of companies and support families’ consumption habits,” he said.

During the past few months, some private investment has been recovered, García-Lascurain said. "However, we are not yet at pre-pandemic levels. Investment continues to shrink despite the resumption of activities," he explained. "Private investment is the main driver of employment generation, as more than 80 percent of jobs in Mexico depend on businesses.” He added that as investment shrinks, the impact is noticeable on the well-being of many families.  

However, industrial activity has shown signs of recovery but this is mainly thanks to exports. “The Mexican economy is recovering to a large extent because of the growth that the US is experiencing, mainly due to the support injected into its economy and the new support programs of US President Joe Biden's government.” According to García-Lascurain, the current levels of consumption north of the border have not been seen since the post-war period after WWII and this is a great boost for Mexican companies that export. Mexico's exports fell to US$18 billion because of the pandemic but by March 2021 they had doubled, he said.

In Mexico, consumption in February was still below the levels recorded in the same period in 2020, before the pandemic hit the country. “This shows the severe impact of the recession,” García-Lascurain pointed out. In 2020, more than 1 million businesses closed for good, while 13 million people were out of work. According to García-Lascurain, the industries that do not depend on foreign trade have not yet managed to recover.