Leading ITAM and UNAM economists predict a 2019 recession for Mexico

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Amid diverse projections of different scholars, groups and financial companies on what awaits in 2019 for the Mexican economy, economists of the main universities of the country agree that the growth of the gross domestic product of the country will not be as high as anticipated by the federal government and they even warn that the risk of suffering a recession is real.

In line with the projections of organisms, such as the IMF, and financial firms, such as the English Barclays, the specialists consulted by Forbes Mexico consider that the economic growth of the country at the end of 2019 will be well below the estimated 2% anticipated by president Andrés Manuel López Obrador.In addition, experts point out that the ratification of the Treaty Mexico, the United States and Canada (T-MEC), is one of the points that could play in favor or against the national economy, since it is one of the most robust trade agreements for the country its approval or rejection will have significant repercussions.

Growth, below what is desired

Valeria Moy, a professor at the Autonomous Technological Institute of Mexico (ITAM), considered that the 4% goal is not even on paper, but based on what the president says. Estimates that Mexico’s GDP grow 1.2% during this year “if it goes well”, figure below the estimate of Andrés Manuel López Obrador (2%).Although Moy recognizes the possibility of growing to 4% theoretically, she sees nothing in the new government that allows it to grow at that rate at the end of the six-year term, much less “if it follows the trend of canceling contracts with the Private Sector, electric auctions , oil farmouts, that is not a sign of any good omen in economic matters. ”In that sense, José Ignacio Martínez Cortés, coordinator of Analysis in Trade, Economy and Business (LACEN-UNAM), anticipates that by the end of 2019 the economy will advance only 1%. “Our economy would be growing less than the population grows and that implies less possibilities of absorbing young labor, that a recent graduate finds a job. Obviously, when jobs are not available, it also impacts wages and at the end of the day it becomes something very close for us, “said the specialist.

Risk of recession

For Valeria Moy, from the Academic Department of Economics of ITAM, “the probability of recession is real” and it will depend on the record shown in the second quarter, although the recession can be avoided, with a stagnant growth, of 0.1%. During the first quarter of 2019, the GDP reported a fall of 0.2% in real terms, in relation to the previous quarter, with figures adjusted for seasonality disclosed by the National Institute of Statistics and Geography (Inegi). Although there is no single definition of recession, adds the professor, the typical one is “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”, and Mexico already had one negative quarter between January and March. For his part, the coordinator of LACEN-UNAM, José Ignacio Martínez Cortez, mentions what would be the factors that could cause a recession: the tariff threats of Donald Trump – currently in stand-by and subject to the immigration issue-, and the lack of confidence of the investors in the decisions taken by  the Mexican federal government. “The tariff threat will cause the economy to fall by 0.9%, hence the relevance of the July 25 meeting in which Mexico must present new alternatives to the US; and the investor still does not have full confidence in the government, so AMLO must work to convince them that it is safe to invest in Mexico, “says the specialist. “The world economy is in a synchronized slowdown. International merchandise trade will fall 20% in relation to 2018 as a result of the nationalization of Trump’s globalization that affects the exchange of goods, ” she added.

How to avoid recession

However, the specialist points out that one of the strengths of the Mexican economy to avoid such a situation is the commercial exchange, so it will be of the utmost importance the ratification of the USMCA with the United States and Canada. And incidentally both countries will have electoral political processes in the coming months and this could slow down the entry into force of the trade agreement. While UNAM specialist, Jose Ignacio Martínez Cortez, also points to public spending, through public investment, as one of the factors that could stimulate the economy, at the same time it would encourage the private sector, reflected in the creation of jobs. He also believes that the approval of the new trade agreement with the North American partners benefits the Mexican economy, since this gives the investor certainty at a commercial, financial and monetary level. “Monetary policy plays in favor of the government. The interest rate, from the FED and Banxico, boost investment and encourage spending and inhibit savings. Similarly, inflation is on programmed margins and with the exchange rate the peso is appreciating, “concluded José Ignacio Martínez Cortez.Sources: Forbes.com / forotvThe Yucatan Times Newsroom