Wednesday, January 26

Economic crisis: X-ray of the crisis in Mexico: 90% of households have lower income due to the pandemic | Economy

Angélica María López, the family's main breadwinner, with her daughter in a rural community in Chiapas.
Angélica María López, the family’s main breadwinner, with her daughter in a rural community in Chiapas.Nayeli Cruz

Mexico already has its X-ray of the economic impact of the pandemic. Households entered and spent in 2020 6% and 13% less, respectively, than in 2018, the National Survey of Household Income and Expenditure revealed this Wednesday, the most detailed photograph to date of how the pandemic was experienced indoors. Inequality was reduced at the cost of significant income losses in 90% of the population. The increase in government transfers was not enough to offset the drop in wages, but it cushioned the impact on the poorest. Geographically, the cities and states most focused on the service sector were the ones that bore the brunt of the blow.

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The macroeconomic data of a fateful 2020 were already known: the 8.5% drop in GDP and the destruction of 12 million jobs. The new survey, which is carried out by the National Institute of Statistics and Geography (Inegi) every two years, now allows the analysis to be carried out on the street and into homes. The income went from 53,418 quarterly pesos to 50,309. The reduction is mainly due to the loss of employment and wages, which represent 64% of regular income and fell almost 11% compared to 2018.

Faced with this drop, government transfers, which represent around 17% of family income, increased 8.3% to 8,871 pesos per quarter and reached 30% of households. Behind this increase, there is a 50% increase in social benefits and a 15% increase in retirements and pensions. These aids cushioned the impact, but were not enough to fill the gap left by wages. “The increase in transfers was insufficient to compensate for the drop in income from work,” said the economist Julio Santaella, president of Inegi, on Wednesday. All a wake-up call for the Government of Andrés Manuel López Obrador, whose response to the crisis was limited to maintaining the programs that already existed without offering greater fiscal stimuli.

Despite the paucity of support, the recession has narrowed the socioeconomic gap in a country where the richest 1% concentrated 29% of income before the pandemic. The poorest 10% had income of 110 pesos a day, a marginal increase of 1.3% compared to 2018, while the best-off 10%, with 1,814 pesos a day, registered a decrease of 9%. The difference between the top and the base of the pyramid is still abysmal; the income of the richest went from being 18 times higher than that of the poorest in 2018 to 16 times. “It is very possible that some households that were previously in the second decile passed to the first decile,” Santaella pointed out.

The figures also show the geographical contours of the crisis: eminently urban and located in the center and south of the country. In the cities, revenues decreased by 8%, while in rural areas they increased by 3.6%. The hardest hit regions were those with a greater weight in the services sector, the most affected by the confinement imposed at the beginning of the crisis. Average quarterly revenues in the tourist resort Quintana Roo plummeted 23% and those of Mexico City, 20.5%. In contrast, the industrial states of the north of the country had a much smaller fall, of 1.3% in Nuevo León and even a 4% increase in neighboring Chihuahua. The export sector is the one that has recovered the fastest thanks to the US reactivation.

The dwindling income led to spending less -from 34,329 pesos per quarter in 2018 to 29,919 in 2020-, but also different. With the closure of schools and the spread of telework, households devoted 45% less resources to education and recreation and 19% less to transport and communication. On the other hand, health spending rose 40.5%. The pandemic and confinement also resulted in changes in eating habits. Spending on products consumed at home increased by 10%, while that of food abroad fell by 43%.

The impact of the pandemic is a moving photograph. After the historic drop in GDP last year, the worst since the 1930s, Mexico is showing signs of recovery. With the advance in vaccination and the surge in exports to the United States, national and international organizations have revised up their growth forecasts for this year. The IMF said this week that it expects the country to grow 6.3%, up from its previous forecast of 5%. However, concerns remain about the quality of the recovery. Although June registered half a million more jobs than a year ago, informal work increased from 56% to 59%, as did the number of hours worked.

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