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News Article

OECD Forecasts Economic Drop of 8.6 Percent for Mexico

By Alessa Flores | Wed, 06/10/2020 - 13:48

According to the OECD, economic growth in March was subdued prior to the arrival of the pandemic and after some time, the economic impact was expected to reach the rest of the world through business travel, tourism, supply chains, raw materials and declining investment confidence. Today, the organization has updated its economic outlook and results do not reveal a favorable scenario for the world economy. "A great uncertainty dominates the world’s economic perspectives," said the organization. "(The COVID-19 pandemic) is an unprecedented global health crisis in our recent history that has caused the most serious economic recession recorded in nearly a century, causing enormous damage to the health, employment and well-being of the world's population."

The OECD announced two prospective scenarios for the end of the year, which, although not equally desirable, are equally possible. The first scenario is that there is a second contagion outbreak at the end of 2020 that leads to new periods of confinement. Economic activity would therefore plummet by 7.6 percent and recovery would be slow toward the end of 2021, when the world could witness an estimated growth of 2.8 percent. Likewise, OECD employment rates are estimated to double worldwide to 10 percent, with a slight recovery in 2021.

The second scenario is based on the lack of a second wave of contagion. Economic activity would then drop 6 percent in 2020 and unemployment would increase to an estimated 9.2 percent. Although the second scenario is slightly better than the first, the OECD's forecasts are negative for the rest of the year.

For Mexico, the reality is not very different. According to the OECD, the pandemic will push Mexico into a severe recession in 2020, driven by the global economic downturn, the fall in tourism, the contraction in oil prices and the paralysis of the national economy derived from confinement measures.  In this context, the OECD stresses that despite the fact that Mexico has taken measures to reactivate the economy, it will be necessary to take additional measures.  The focus should be on providing aid to affected workers, both formal and informal, as well as avoiding the disappearance of viable companies and promoting private investment in the country.

Federico Cerdas, CEO at Global Businesses Inc revealed in an Expert Opinion article that the construction and real estate sector may be key to the country's economic recovery. “(The real estate and construction sectors) play a fundamental role in the economic life of the country; we are the support of more than 2 million families and we account for almost 6 percent of the GDP,” says Cerdas. However, he highlights that there are other elements, such as USMCA and innovation, that will also be key to driving Mexico's economic recovery.

Cerdas proposes three things. The first is to "take advantage of the transferring of manufacturing from China to Mexico and USMCA’s enforcement, which will give us the golden opportunity we have been waiting for over decades." The second is to "understand how the use of new technologies will have an impact on our sector, allowing for greater operating efficiencies, serving new markets and having access to new forms of financing." Finally, the third is understanding that we must "adapt to the new reality, as the way we have been doing business will be forever modified."

For others, such as Jorge Luis Torres, President of AMCHAM, economic recovery will be rooted in the capacity of coordination between key actors in the country. “It is indispensable to maintain permanent coordination between the government and the private sector during the gradual economic reactivation, which needs a binational vision that allows us to continue working towards the same goal and to protect supply chains in both countries that generate employment for millions of families,” explained Torres during an interview with Mexico Business News. He further emphasized that “without this binational vision, Mexico’s supply chains and their essential role in North America could be at risk.”

The data used in this article was sourced from:  
OCDE, Mexico Business News
Photo by:   albertoadan
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst