Mexico, the worst crisis in 88 years is coming

Banxico expects a deep decline in 2020 and may extend to 2021. GDP may fall to 8.8% this year, the worst rate since 1932

MEXICO (Banco de Mexico) – The Bank of Mexico (Banxico) anticipated a deep fall for the national economy of up to 8.8% for this year and the next one a recovery, with the growth of 4%.

If the scenario materializes, it will be the worst contraction since 1932, when the Gross Domestic Product (GDP) collapsed 14.8% and is the most severe expectation this year.

For the first time, the central bank presented three scenarios in their forecasts, given the high uncertainty of the pandemic caused by the Covid-19.

In the presentation of the quarterly report of inflation, the governor of the Banxico, Alejandro Diaz de Leon, said that each of the different scenarios has a degree of impact on economic activity with some probability. “These scenarios illustrate what we have in terms of economic activity, with its characteristics and dynamics; this will be conditional on the health side’s actions and its implications for economic activity,” he said.

Risks
The central bank official listed the growth risks that may materialize, such as prolonged social distancing or stricter measures and additional episodes of financial volatility.

Also, support measures may not be effective in mitigating the effects on productive activity and permanent sequels.

The new forecast presented a drastic adjustment. The previous one still contemplated growth on the economy in 2020, with an interval of between 0.5% and 1.5%, while for 2021, it was between 1.1% and 2.1%.

The expectation of the Secretariat of Finance calculates for 2020 a range from a 3.9% contraction to an advance of 0.1%; for 2021, growth is between 1.5% and 3.5%.

The International Monetary Fund (IMF) estimates a decline of 6.6% for this year and a 3% growth for 2021. The World Bank anticipates a fall of 6% this year and a 2.5% recovery the following year.

With this, the deep recession of 8.8% of the Banxico is the hardest of the previous, not counting those that make private banks every day.

“As for analysts’ expectations, if they are constantly reviewing very often that sometimes it seems like a race to have who reviews faster or with more pyrotechnics, I think that at the end of the day this reflects the uncertainty we are subject to, the dimension of the shock,” said Alejandro Diaz de Leon.

He acknowledged that many have to make specific scenarios in their forecasts. However, in the case of the central bank, they opted for the three-scenario strategy because they do not have probabilistic elements to make statistical inferences based on the past.

“Analysts and forecasters exercises have to be as serious as possible. They put their reputation on the line, and that pays for them to do it thoughtfully, although sometimes it seems very quick,” he said.

Virus Will Wipe Out Up To 1.4 Million Jobs
The deep downturn in the Mexican economy caused by the Covid-19 will have another fatal victim: employment. Up to 1.4 million jobs will be lost this year, predicted the Bank of Mexico.

If the most pessimistic forecast of the Banxico materializes, it will be like ending the jobs of the IMSS, ISSSTE, Pemex, CFE, and the secretariats of National Defense, Public Education, Health, Finance, Communications and Transport, Agriculture and Interior at the same time.

If compared to the population of any state, it means extinguishing the inhabitants of Baja California Sur and Colima, a total of 1.5 million, or that of Aguascalientes, which alone has 1.4 million inhabitants.

The document states that the uncertainty surrounding growth forecasts translates, in turn, into doubts regarding the expectations for the variation in the number of jobs registered with the IMSS.

This means that the central bank is only quantifying losses of formal market places. Experts expect a similar number of informal jobs to be lost.

According to the report, in 2020, a negative variation of between 1,400,000 and 800,000 jobs can be observed. By 2021, there can be a loss of 200,000 jobs and 400,000.

The Yucatan Times
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