The IMF forecasts a 9% drop for Mexico’s economy this year

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The estimate represents a slight improvement over the June forecast, which pointed to a 10.5% drop.

The International Monetary Fund (IMF) forecasts, in its world report published this Tuesday, an economic contraction for Mexico of 9% this year, worse than its peers in the region, such as Colombia, Brazil and Chile, but which represents an improvement of 1 , 5% compared to the estimate made by the same IMF in June. Mexico, the second largest economy in Latin America, will see a moderate recovery next year compared to countries like Peru and Argentina. The region will suffer an economic decline of 8.1% this year and is expected to recover by 3.6% in 2021.

Mexico became the main trading partner of the United States in 2019 and the authorities hope that, having entered into force this year the trade agreement (T-MEC) between the economies of North America, it will benefit from the economic recovery of their country neighbour. The IMF estimates that after a 4.3% drop this year, the US will see a 3.1% recovery next year. That is to say, neither Mexico nor the United States will recover in 2021 their income levels, measured by gross domestic product, lost this year. For Canada, the IMF estimates that the contraction this year will be 7.1% and the recovery in 2021 will be 5.2%.

“On the positive side, the trade agreement between Canada, Mexico, and the United States that entered into force on July 1 helps reduce the uncertainty of short-term trade policy,” says the report published Tuesday by the agency. But persistent frictions (for example, over aluminum, rules of origin in the automotive sector, and the dairy trade) could hamper implementation. Political uncertainty could increase again in these contexts or in discussions involving other partners, which weighs on global growth ”, he adds.

In its report, the IMF assured that, during the pandemic, the organization has provided financial assistance to more than 80 countries and called for debt relief, support and financing for emerging countries and developing economies. As economies reopened during the summer, the report explains, general activity normalized faster than anticipated in the previous report, published in June. Second-quarter GDP came as a surprise to the upside in China, where, after tightening measures eased in early April, public investment helped propel activity back to positive growth in the second quarter. That was also the case in the US and the euro area, where both economies contracted at a historic pace in the second quarter, but less severely than projected thanks to government transfers that support household income.

“The news, however, was not uniformly positive. Second-quarter GDP was weaker than projected, for example, in places where demand plummeted after a very sharp compression in consumption and there was a collapse in investment (as in India), where the pandemic continued to spread. (as in Mexico), where the soft abroad demand weighed especially in export sectors (for example, in Korea), and where the weakening of remittance flows affected domestic spending (for example, in the Philippines) “, says the report.

On October 6, the IMF published a specific report on Mexico in which it warned that the “disproportionate burden of the impact is on the poor and vulnerable” and pointed to reduced government support for the neediest families. The government says the report, increased spending on health and family contributions by the approximate equivalent of 0.7% of GDP, which is low compared to the 3% of GDP spent on average by the world’s largest emerging countries. The Fund also recommended “reprioritizing” spending towards more social support in social protections, pensions and public investment.

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