Jesús Garza: The Mexican economy in 2021

Jesus GarzaJesús Garza Source: Courtesy

This year the national economy will contract around 9 percent annually, its biggest drop since the Great Depression of 1932. The impact of the pandemic caused a strong slowdown in the economy on two fronts, due to the sharp decrease in consumption and the interruption of production processes in the industrial sector. The economy, however, began to recover in the third quarter of the year along with the strong growth of the US economy. What can we expect for 2021? .

The tax incentives in the United States Together with the expectations of very low interest rates in that country in the medium term, they are strengthening the economic recovery. This is boosting the Mexican economy, especially due to the manufacturing export sector. The most dynamic component of aggregate demand is net exports.

Thus, the domestic export manufacturing sector is likely to continue with good dynamism in 2021. The iTMEC implementation and trade conflicts between China and the US, coupled with the logistics problems of suppliers observed as a result of the pandemic are two favorable factors.

In contrast, the domestic demand continues depressed due to the closure of thousands of SMEs and the loss of millions of jobs. Fiscal support is few (they barely represent 1 percent of GDP) and insufficient. Besides, the monetary politics it will be more restricted in an environment of higher inflationary pressures. The consequence will be a very slow recovery in the service sector.

On the other hand, the gross fixed investment He already has more than two years of strong contractions. It has recently contracted in double digits and will reduce the potential growth of the economy in the medium term. Investment is not only an important component for short-term aggregate demand, but it is responsible for increasing the country’s production capacity in the medium term (potential GDP). The persistent fall in investment implies average growth rates lower than the historical average, which will encourage the recovery of the economy. The economy is expected to recover its 2019 GDP only in 2024 or until 2026. The US will do so in the middle of next year.

Thus, I estimate that the economy will grow 3.6 percent in 2021 after a 9 percent contraction in 2020. From that year on, I estimate that the economy will grow on average at 2 percent per year due to the sharp decline in fixed investment. gross. On the positive side, a boom in investment is expected in the industrial sector, especially manufacturing, due to the momentum of the US economy and the favorable effects of the TMEC.

On the negative side, it is expected that domestic demand remains depressed, before the imminent closure of thousands of companies. This could worsen if the tourism sector, which represents close to 10 percent of GDP, takes time to reactivate. This last sector will be closely related to the management of the country’s vaccination process.

Happy New Year! .

The author is CEO of GAMMA Financial Solutions and professor of Economics and Finance at EGADE Business School. He has a Ph.D. in Finance and an MA in Financial Economics, both from the University of Essex in the UK. He was the chief economist for Mexico at Itau BBA, deputy general director of International Financial Organizations at SHCP and researcher at Banco de México.

This is an opinion column. The expressions used here are the sole responsibility of the person signing them and do not necessarily reflect the editorial position of El Financiero.