Mexico will have a slower recovery after covid-19: BBVA Mexico

Karen Guzman

Mexico City / 18.02.2021 15:44:54

The structural weaknesses, the problems of temporal inconsistency and the persistence of an environment of uncertainty for investment, frame a weak starting point for the growth of the Mexican economy in the long term, assured BBVA Mexico.

An analysis led by Carlos Serrano, an economist at the bank, indicated that the investment environment will be a determining factor for economic activity; promote public policies that promote the rule of law and legal certainty in contracts will be key to boost the potential growth of the economy.

In the short term, he indicated BBVA, the dynamism of the economy will depend crucially on vaccination, since greater mobility will generate greater demand in physical establishments and services, with a boost on employment.

“In a context of low fiscal and monetary response to the pandemic, only vaccination will gradually soften supply and demand shocks in the economy. However, as of February 17, 2021, only 0.9 people per 100 inhabitants in Mexico had received a vaccine against covid-19, far behind the figures registered in some developed countries, ”he said.

He also added that it is essential to provide public spending in sectors such as health, education, and social safety nets as a whole to improve the structural conditions of the country in such a way that the economy is better prepared to face shocks.

“Mexico should have a quality and universal health system, and an unemployment insurance program with national coverage. The ultimate goal is to reduce the income gap by promoting both the accumulation of physical and human capital. In addition, given that changes in the education system can take many years to produce results, more progressive fiscal policies are necessary in the short term, particularly in a context in which inequality is rebounding rapidly, ”he explained.

According to estimates by the International Monetary Fund (IMF) -the same that allow an international comparison-, in 2021 GDP will be almost 5.0 percentage points (pp) below its level before the pandemic in 2019, and only until 2024 will again reach the starting point prior to covid-19.

In terms of GDP per capita, recovery will be achieved until 2026, while in the United States it will be reached this year, that is, five years earlier. Under BBVA’s growth forecasts for Mexico, the outlook is even bleaker, with GDP per capita recovering until 2029.

Unlike Mexico, other Latin American economies will show a better evolution of economic activity in the long term; According to IMF estimates, in 2025 Chile’s GDP per capita will exceed its pre-covid level by 8.0 pp, while Brazil’s will be 5.0 pp higher.