Latest economic data shows a growth of 0.8% during the first quarter of 2021

The latest economic data shows Mexico rebounding out of recession, registering a growth of 0.8 per cent in the first quarter of 2021.

Latin America’s second-biggest economy fell by 8.3 per cent last year, as lockdowns and travel restrictions halted economic activity for months but the projected economic growth may pick up steam in the coming days. Some analysts are already pointing to the positive signs being exhibited in the Mexican economy.

In addition, the ongoing immunisation programme and reopening of the American economy should provide a fillip to the Mexican economy, with economic analysts from Atradius predicting that Mexico’s gross domestic product (GDP) will partially rebound in 2021, increasing by 6.1 per cent.

Mexico’s food and manufacturing industry is expected to get a boost from United States (US) President Joe Biden’s infrastructure plan. Its tourism sector is also hopeful of getting back to normal, with the US increasingly vaccinating its citizens who have always represented a bulk of the tourists in the Latin American country.

Manufacturing exports should be boosted

Exports in the manufacturing sector should receive a boost from higher US growth prospects, while an infrastructure plan may contribute to a partial recovery of investment.

However, this recovery expectation remains subject to a timely containment of the pandemic, including the speed of the vaccination campaign.

The government debt ratio is expected to level off in 2022 despite weaker government finances. Mexico’s economy suffered its sharpest contraction last year following the outbreak of the COVID-19 pandemic which exacerbated an already weak economic situation.

Mexico entered 2020 in a mild recession, due to fiscal tightening and falling investments on the back of rising policy uncertainty. High crime rates and endemic corruption continue to undermine the business environment and state functions in Mexico.

Outlook for 2021

The 2021 outlook for most sectors in Mexico ranges from fair to bleak with particular difficulty ahead for construction, engineering, and steel. The automobile sector, Mexico’s leading source of exports, suffered from a sharp fall in external demand and severe supply chain disruptions over the past year.

To help mitigate these impacts from the COVID-19 pandemic, the central bank cut interest rates several times in 2020, to a still relatively high four per cent in February 2021, while the probability of further monetary policy easing has declined. Inflation is expected to remain at the upper end of the central bank’s two per cent to four per cent target range, mainly due to higher fuel prices and shortages from supply-side disruptions.

Due to meagre fiscal support and comparatively high interest rates, Mexico’s economic recovery is expected to be protracted, and GDP will likely not return to its pre-pandemic level until 2024.