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News Article

Inequality: True Economic Problem in Times of COVID-19

By Alessa Flores | Mon, 07/20/2020 - 13:12

Mexico's recovery will take longer than expected and its speed toward the implementation of the "new normality" will depend on the evolution of the pandemic, explained Minister of Finance, Arturo Herrera. Therefore, "economic policy, particularly fiscal and financial policy, must adjust to the new reality," Herrera emphasized, according to a note by Proceso.

However, for some global organizations such as the World Economic Forum, the recovery of Mexico and other countries goes beyond numbers. Although fiscal and economic policies, in harmony with the health control of COVID-19, are key to the return to normality, they are not the only thing to ensure recovery. World Economic Forum’s Chief Economists Outlook explains that the pandemic has made it evident that global economic systems are inadequate. Therefore, facing the political, economic and social disruptions that COVID-19 has exacerbated will require seeking forms of recovery that "reset economies on a new trajectory of more inclusive and sustainable growth."  

According to INEGI figures, the richest 1 percent of the country captures 17 percent of all national income, while the 50 percent of the least favored population barely captures 11.8 percent. This reality is not new for Mexicans, their business and political leaders. If only 1 percent of the highest-income people in the country capture a higher proportion than the 50 percent with the lowest income in the population. This means that although the COVID-19 crisis has impacted all Mexicans, it has not affected them all equally. Therefore, this huge gap should be a continuous reminder of the importance of changing the incidence of poverty in the population and its growing economic inequality. 

Adriana Lobo, in an interview with MBN, explained that the pandemic is a moment where one should not speak of "opportunities for change" but rather of "needs for change." The current situation in Mexico and the world requires that we think of more sustainable ways of living. “The COVID-19 pandemic became a magnifying glass on the interdependence of the economic, social and environmental systems that prevail in our society. Today, we can see how the problems suffered by human beings derive from a chain of consequences due to their bad relationship with the environment,” says Lobo.  If we are going to change as a society, Lobo believes the humanity has to ask itself how we want to change and how we can make this world a better place. “Change cannot longer be based on human inequalities,” she says. 

In numerical and macro terms, different national and international organizations propose diverse recovery horizons for Mexico. However, all these horizons agree on one thing:  it will be a slow recovery and the economic impact on the country will be somewhat severe. BBVA made an investigation into the economic recovery and explained that the range of its forecast for the fall in GDP for this year is now between -6 and -12 percent, he explained to El Economista. Likewise, BBVA emphasized that in the event of new waves of contagion, the forecasts could change and tend to a double-digit drop.

Yet, this reality is not unique to Mexico. According to an official OECD statement, prospects for economic growth have weakened and results are expected to be much slower than previously forecast, explained Pier Carlo, Head of Economy of the OECD. In addition to the fact that global inequality is an equally important factor as in Mexico. “The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor around the world are unprecedented in modern times,” explains World Bank Group President David Malpass in a press release. It is estimated that more than 60 million people could be pushed into extreme poverty in 2020. Therefore, World Bank emphasized the “the poor and vulnerable are among the hardest hit by the pandemic and economic shutdown.”


 

The data used in this article was sourced from:  
El Proceso, El Financiero, El Economista, World Bank, OCDE, MBN
Photo by:   photoheuristic.info
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst