Unemployment Crisis May Hurt Economic RecoveryBy Cinthya Alaniz Salazar | Wed, 07/14/2021 - 11:43
Although the Mexican economy showed signs of recovery in May, reporting a growth of almost 25 percent compared to last year, cities reliant on a large service industry are still underperforming. A preliminary report by the National Institute of Statistics and Geography (INEGI) and Mexican Institute of Social Security (IMSS) points to 15 consecutive months of employment loss. This is particularly important for the overall economy considering that Mexico City, heavily reliant in the service sector, provides 16 percent of the total jobs registered with IMSS.
The services sector has contracted by almost 4 percent in comparison to last year, according to INEGI. Moreover, the austerity politics put in place by the federal government at the beginning of the pandemic have not resulted in a corresponding return on investment, making high unemployment a foreseeable outcome, according to Gabriela Siller, Director of Economic and Financial Analysis of Banco BASE. Siller told Expansion that the emergence of the Delta variant coupled with a third COVID-19 wave has also contributed to further unemployment, which can lead to modest economic growth during the next quarter.
In spite of this, the federal government is hopeful that the country will be able to bounce back with economic growth of 6.5 percent this year, which would mitigate the almost 9 percent GDP loss experienced as a result of the pandemic. US Central bank officials have supported these projection figures since the US resumed daily economic activity driving its citizens to start spending not only domestically but in Mexico and Canada. This month’s US imports from Mexico are up by 30 percent, even higher than they were in 2019 according to the US Census Bureau.
The World Bank, however, contradicted this forecast by pointing to the country’s underperformance after the 2008 – 2009 global crisis. As indicated by INEGI’s unemployment records, it took the country almost seven years to recover after its 6 percent peak in September of 2009. In May 2021, the unemployment rate stood at about 4 percent, not as bad as after the market crash but still 1 percent above pre-pandemic levels. Unfortunately, unemployment is expected to the largest impact on low-skilled workers who can expect lower earnings for a decade following a crisis, widening an already problematic inequality gap.
In order “to minimize long-term scarring” the report concludes by suggesting the adoption of policies to support sustainable recovery of economies and facilitate recovery employment. Considering all the moving variables, its unclear if Mexico will be able to meet its projected growth goals for the year.