The COVID-19 crisis brought major changes to the global economy. Most of its impact was felt in the second quarter of 2020. The macroeconomic indices of many countries saw sharp declines. In recent months Mexico has turned out to be an exemplification of economic recovery. Here is a look at some economic indicators that show significant improvement.
Before COVID-19
Mexico is a developing market economy which has been stable since 1994. According to the IMF the economy of Mexico is the fifteenth largest in the world. Since the ratification of the North American Free Trade Agreement (NAFTA) in 1994 the Mexican economy has been growing steadily. Exports within the trilateral trade bloc are instrumental to the country’s GDP. Remittances sent from the US also constitute a part of Mexico’s economy. Remittances comprised 2.7% of Mexico’s GDP in 2018. In 2019 remittances to Mexico touched $36 billion. This was a 5.3% increase from 2018.
Impact of COVID-19
The impact of the global crisis on Mexico's economy became visible starting April 2020. Within 2 months the economy was showing signs of recession. GDP had decreased by 52.7% in second quarter of 2020. The market showed a weak outlook owing to much uncertainty. Mexico’s central bank, Banco de Mexico estimated an 8% contraction of the economy.
Exports recover
Starting with the third quarter of this year Mexico's economy has seen positive growth. After declining by 17.5% in April and 2.4% in May it posted a growth of 8.9% in July. Moreover the future outlook is promising. The US, Mexico's largest trading partner, has been focused on reviving trade and getting things back to normal.
Mexico is an emerging market with an economy largely dependent on trade. The country’s exports picked up in July 2020 with an increase of 9.2% over the previous month. The major contributor was oil export with an increase of 19%. This was followed by manufacturing products which increased by 17.2%. The overall exports in July were less than last year’s figures for the same month. However, Mexican exports increased compared to the previous quarter of 2020. This is a very good sign. Mexico’s was the twelfth largest global exporter overall, and is now the seventh largest auto manufacturer in the world.
Industry, retail, and employment
Since 1994 Mexico’s industrial output is considerably dependent on the US and Canada. NAFTA eliminated the tariff and non-tariff barriers to trade between the 3 countries. When the US and Canadian economies slowed down, Mexico’s industrial production was inevitably impacted. However, in July 2020 Mexico's industrial output saw an increase of 7.8%.
Retail sales in Mexico started improving in May. In June they have grown by another 7.8%. Future estimates look brighter as trade outlook has improved starting with the third quarter of this year.
Employment in both formal and informal sectors saw growth starting August 2020. The moderate growth of 1.8% in August is expected to accelerate. According to an autonomous agency of the Mexican government, the National Institute of Statistics and Geography (INEGI), 1.5 million more people became employed in July 2020 in comparison to the previous month. The trilateral economic recovery is also proving instrumental in improving remittances. Large numbers of Mexican overseas workers have regained their jobs and are able to send money to Mexico again via remittance transfers. Mexican migrant workers in the US can now take advantage of a new promotion launched by Ria. There will be a $0 fee on bank to bank remittance transfers from the US to Mexico, sent via Ria Money Transfer.
Stable currency
The Mexican peso recorded an appreciation of 9.3 % since April 2020, and stabilised at MXN 22.2 per USD. The peso is estimated to appreciate further with increase in trade with the US and Canada.
Mexico's foreign owned government debt fell to 22.8% in August. This is the lowest since March. On March 17, 2020 Mexican President Andrés Manuel López Obrador addressed the country on its debt obligations. He confirmed the country’s ability to repay the debt and rejected the offer of an extension period from external creditors.
The consumer price index (CPI) of Mexico increased to 4% in August. Mexico’s central bank announced an interest rate cut by 50 basis points on August 13, 2020 to further boost the economy. The country should expect further rate cuts as the mid-term elections are due in 2021.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.
