Mexico will grow more than expected in 2021. In the presentation of the quarterly report, the Bank of Mexico has revised up its projections for this year to a range of between 5% and 7%, with a central scenario of 6%. His previous prognosis was between 2.8% and 6.7%. However, the institution has lowered its main projection for 2022, from 3.3% to 3%. The greater optimism is due to the large stimulus programs in the United States and the reactivation of both the Mexican and global economies thanks to the advance in vaccination against covid-19. At the same time, inflation of 4.8% is expected by the end of the year, far from the goal of 3%.
The central bank anticipates a quicker return to normal after the historic 8.5% slump in GDP in 2020, the biggest drop since the crisis of the 1930s. The growth of 0.8% in the first quarter, unexpected because it occurred in the middle of the second wave of infections, has made it necessary to review, for the better, the institution’s projections for the rest of the year. If the central scenario of 6% is fulfilled, the economic activity of the Latin American country is expected to return to its pre-pandemic levels in the second quarter of 2022. If, on the other hand, GDP grows by 7%, this may be ahead of end of this year.
In the institution’s calculations, the Keynesian drive has particular weight, not from the Mexican government, which has refused to spend more, but from the US Administration. Last week, President Joe Biden proposed a budget of six trillion to Congress. dollars for the next fiscal year, a level of spending not seen since World War II. Governor Alejandro Díaz de León has dismissed this policy as “a great opportunity for Mexico due to its proximity and ties to the US economy.” “We should try to make the most of it,” he said.
All in all, the Bank warns that an “environment of high uncertainty” remains. Among the risks that the institution identifies are possible delays in the production and application of vaccines, bottlenecks in global supply chains, a lower investment than expected, as well as greater capital outflows due to increases in the rates of interest in the United States and an increase in the attractiveness of China as a destination for these flows.
In this context of volatility, inflation is higher than expected, due to the recovery of energy prices, which bottomed out at the beginning of the pandemic, and of food. The Bank expects the consumer price index to register a 4.8% rise by the end of the year, compared to the 3.6% previously projected. The forecast is far from the 3% goal, although the institution expects this increase to be of a “temporary” nature and that inflation will return to the target range by the second quarter of 2022.
Díaz de León has not wanted to advance changes in monetary policy in response to this situation. The governor has highlighted “a complex inflationary environment” due to the heterogeneous impact of the crisis on the different sectors of the economy, to which is added the US stimulus plan. “We are in an unprecedented situation. It points out that we must be cautious ”, he pointed out. From mid-2019 until this February, the central bank successively cut interest rates, from a maximum of 8.25% to the current 4%. At the last meeting of the Governing Board in May, it was decided to end this policy of relaxation in the face of rising inflation.
The presentation of the quarterly report has been overflown by the intention of President Andrés Manuel López Obrador, manifested just over a week ago, not to renew Alejandro Díaz de León at the head of the institution. The governor, whose term ends in December, has said that the appointment is “a full power” of the president. Deputy Governor Gerardo Esquivel has gone further and called it “unfortunate” to discuss the relief so soon, considering that it “adds unnecessary uncertainty.” However, the official has also indicated that “a change of a member of the Board does not affect either the autonomy or the fulfillment of the mandate” of the Bank.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.