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Vaccination, Elections: Keys to Accelerate Mexico's Recovery

By Alejandro Enríquez | Wed, 05/26/2021 - 11:24

You can watch the video of this presentation here.

After a historic economic downturn caused by the COVID-19 pandemic, Mexico is on its path to recovery. The speed at which the country recovers will rely on the government's vaccination plan, the results of the upcoming elections, and on whether Mexico's ruling party MORENA gains the absolute majority in the lower chamber of congress, explained Alejandro Valerio, Associate Practice Leader Mexico and Central America at FrontierView, during Mexico Business Forum 2021.

Valerio inaugurated the event held on Wednesday, May 26, with an overview of the variables influencing the recovery of Mexico’s economy and the future scenarios the country might face. "Mexico’s economy is undergoing a slow recovery. We should expect it to remain a really attractive economy in the middle and long-term compared not only to Latin America but also to other emerging economies," said Valerio.

Vaccination plays a central role in the path towards recovery. “Mexico has not flattened the COVID-19 death curve. The country has the highest death toll of the region, which has led to a significant economic impact," said Valerio. To date, public figures show that Mexico has vaccinated 8.3 percent of its population. Following that pace, the country should reach 80 percent inoculation sometime during the 1Q2023. Earlier this week MBN reported on Mexico's path towards herd immunity, described by government officials as reaching immunization for 75 percent of the population. Moreover, the government released a Diplomatic Management Platform detailing Mexico's vaccine contracts.

The second key variable for Mexico's recovery is political, explained Valerio. Over 20,000 public positions are elected this year. Morena had a landslide win in 2018 thanks to President Andrés Manuel López Obrador. The question now is: will MORENA regain an absolute majority of more than 333 seats or just a simple majority. MORENA’s key states are Mexico City, State of Mexico and Veracruz but the recent accident on Line 12 of Mexico City's subway system impacted polls. The lower chamber of Congress is important given that there are several reforms that if approved could send negative signals to investors, said Valerio. Among those are the reform of Banxico's autonomy, a thorough energy reform, a tax reform and a judicial reform.

Valerio also explained that remittances hit a record in 2020 and continued high this year with an accumulated US$10 billion during 1Q2021, an annual increase of 13 percent. However, Mexico's fiscal stimulus programs to alleviate the effects of the pandemic remained at only 2 percent of the GDP, according to the IMF, leading over 1 million SMEs in the country to close permanently.

Scenarios to look forward to include the economic recovery of regions strongly supported by government programs, such as Tabasco and the states involved in the Mayan Train, as well as those states strongly linked to the US economy. "The sectors linked to the US and Canadian economies, such as automotive and agribusiness, are showing a faster recovery rate than industries relying on the domestic market,” said Valerio. As analysts raised their expectations of the growth of the US economy from 5 percent to 6.5 percent, Valerio explains that this move will have a positive influence in Mexico’s economic sectors and regions strongly linked to the US economy.

Photo by:   MBN
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst