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Mexican Economy May Contract by 4% to 8% in 2020

Mexican Economy May Contract by 4% to 8% in 2020

Thursday, 02 April 2020 06:38 PM

Mexico's Treasury predicted Thursday that the country's economy will contract by as much as 3.9% in 2020 the face of the spreading COVID-19 pandemic, but private analysts are making even more dire predictions: the country's worst economic downturn since the Great Depression.

That was underscored Thursday when Mexico's Tourism Department said it was working with hotel companies to ensure the “gradual closing” of hotels in the country.

The Bank of America predicted Thursday that Mexico's GDP could contract by 8%. That would be a bigger downturn than the 2009 global recession — complicated in Mexico by a swine flu outbreak — when GDP contracted by 6.5%. It would also be worse than the December 1994 peso crisis, following which the country's GDP contracted by 6.2% in 1995.

Bank of America analyst Carlos Capistran said: “You would have to go back to the Great Depression or the war to find numbers like this.”

The bank said Mexico will face the twin shocks of a predicted 6% economic contraction in the United States, its largest trading partner, and oil prices that have fallen to about $10.60 per barrel for Mexican export crude.

The U.S. downturn “impacts Mexico negatively mostly through trade but also through lower remittances,” the money that Mexican migrants send home, according to the report.

Mexican migrants sent home a record $36 billion in remittances in 2019, making it a larger source of revenue than tourism or oil exports.

But the report also noted that the recovery could be strong after the pandemic eases, with a strong upturn possibly starting in the fourth quarter of 2020.

“We see a recovery to 4.5% GDP growth in 2021 in part due to a large US recovery but also as the depreciation of the peso is likely to help economic activity after the initial shock is over,” according to the bank's report.

Mexico's Treasury Department said even the best-case scenario for 2020 would be no growth.

Mexico was already in a technical recession. “In a very short period the global economic panorama has deteriorated rapidly and significantly,” the treasury said in its forecast to Mexico's lower legislative chamber Wednesday.

It said the high level of macroeconomic uncertainty provoked by the pandemic makes it difficult to predict economic growth.

Gabriela Siller, an analyst with Banco Base, said Thursday that the Treasury forecast appeared to be optimistic. She noted that the latest survey published by Mexico's central bank anticipated an average contraction of 3.99%

President Andrés Manuel López Obrador plans to lay out the government's economic recovery plan Sunday.

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Mexico's Treasury predicted Thursday that the country's economy will contract by as much as 3.9% in 2020 the face of the spreading COVID-19 pandemic, but private analysts are making even more dire predictions: the country's worst economic downturn since the Great...
mexican, economy, contract, virus
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2020-38-02
Thursday, 02 April 2020 06:38 PM
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