Today I will talk about a topic that some people have insisted on asking me. Regarding some economic variables that are also published insistently on social networks.
Is an economic crisis approaching?
Let’s stop to analyze the perspective of the question. Economic crisis for whom? What conditions must be present to consider an economic crisis? How do you contextualize an economic crisis?
To begin with, publications in specialized media must be read in the proper context. For example, they talk about the impact of the war in Ukraine and Russia on grain prices, they talk about the impact of oil prices, they talk about the exchange rate between the Euro and the US dollar, they read statements by Bill Gates , Elon Musk, Mark Zuckerberg and a long etcetera.
Before answering the question, let’s define some terms:
GDP. Gross domestic product. It is the value of all final goods and services produced within a country in a given period. We normally see it published in percentage and read to find out if the economy grew, stagnated or even declined. But ultimately it is an amount of money. The GDP figure in the first quarter of 2022 was 303,521 million euros (Source: datosmacro.com). We are a country of 128,000,000 people and 1.9 million square kilometers.
Interest rate. There are many definitions and contexts, but in general it is a reference percentage for banking operations. It is determined by the Bank of Mexico. It represents the cost of obtaining money. The Interbank Equilibrium interest rate is 8.0245% at 28 days as of July 18, 2022 (Source: Banxico)
Rate of inflation. It is an imbalance in the economy (supply and demand) that consists of a general increase in the prices of products and services, as a consequence the purchasing power of the currency decreases over time. It is represented by a percentage. In Mexico, for its calculation, the INEGI issues information from the National Consumer Price Index (INPC) and the National Producer Price Index (INPP). As of June we are at 7.99% inflation for the last twelve months.
In summary, at least these three indicators for the country show signs of deterioration: high inflation that with the rise in interest is intended to curb consumption, which in turn could lead to a drop in productivity.
TIPIRVING. If it is cloudy, the probability of rain is very high. If you drive at 150 km per hour, the probability of suffering a mishap is high, if the economic indicators show damage, the probability of a decrease in economic activity is high.
And again the question: Is a new economic crisis approaching?
It is a very “strong” term (economic crisis), but my opinion is that we will continue with a slow and difficult economy, but not as bad as the 1995 economic crisis in Mexico, I hope not.
by Irving Alberto Escalante Castillo