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Mexican President, Andrés Manuel López Obrador, will present his fourth annual government report on Thursday with a lower GDP than before his term in office and with trade disputes due to the discomfort caused by his energy policy in the Treaty between Mexico, the US, and Canada (T-MEC).
Mexico’s GDP rose 0.9% quarter-on-quarter from April to last June and 2% year-on-year, accumulating growth of 1.9% so far in 2022, but this level is similar to the close of 2017, a year before López Obrador assumed the presidency.
Mexico had already contracted by 0.1 % in 2019, the first full year of López Obrador’s government, and is one of the few countries in Latin America that has yet to recover its pre-pandemic GDP, which left a historic contraction of 8.2 % in 2020 and an insufficient rebound of 4.8 % in 2021.
“We are talking about four years where the Mexican economy is even smaller than when President Lopez Obrador becomes president,” Hector Villarreal, vice president for Latin America at the Center for the Study of the Economics of Longevity (EIDL), commented to Efe.
Stagnation
Growth in 2021 and 2022 is still part of the recovery of the Mexican economy after the restrictive measures of the pandemic, while it resents the war between Ukraine and Russia, which has put pressure on inflation and the disruption of value chains, mainly in the agri-food sector.
The International Monetary Fund in July raised its growth forecast for the Mexican economy from 2% to 2.4% for 2022. The Ministry of Finance and Public Credit (SHCP) has indicated that the Mexican economy has a growth floor of 2%.
But Villarreal pointed out that macro growth has not permeated all Mexican states, so “many areas of the country are still economically very depressed.”
Meanwhile, gross fixed investment has “abruptly fallen” due to investor distrust, according to Ignacio Martinez, director of the Laboratory of Analysis in Commerce, Economics and Business (Lacen) of the National Autonomous University of Mexico (UNAM).
Inflation
Both experts highlighted that for López Obrador’s fourth government report, which is officially presented every September 1, the country faces the highest inflation in just over 20 years, at 8.62% annually in the first two weeks of August, almost triple the Bank of Mexico’s target rate of 3%.
Villarreal explained that inflation might be “controllable” but warned that it has mainly affected foodstuffs, which is “tremendously detrimental to the poorest people.”
Martinez pointed out that although the minimum wage in Mexico has increased in the last four years, the purchasing power is lower.
“We found that there are 38.47 million Mexicans who earn between one and two minimum wages, so, beyond the increase in these four years, their purchasing power is not enough for them,” detailed the director of Lacen.
Martinez added that 67.64% of the economically active population in Mexico “does not have the resources to cover the minimum of the basic food basket.” Hence, he summarized that it has been “four years of macroeconomic stability with a growing social deficit.”
Energy policies
Villarreal said that much of Mexico’s economic performance would depend on how the dispute with the US and Canada, which have initiated consultations against López Obrador’s energy policies for allegedly contravening the T-MEC, is resolved.
The trading partners have questioned the measures of López Obrador’s government to privilege state-owned companies, Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE), to the detriment of foreign investments.
“If it (the dispute) is resolved, we will be talking about better negotiations for Mexico,” commented Villarreal.
In contrast, the expert considered that if the dispute escalates, it will generate legal uncertainty and affect investment, which could “freeze.”
“This is the most dangerous thing we can have in these times of recovery,” he warned.
Martínez agreed that the resolution would define the outlook towards the end of the year.
And he concluded that if the Mexican president hardens his nationalist policy, “it will cause a decrease in new foreign investment.”
