Mexican economy needs years to recover from virus – IMF

Mexico faces a years-long struggle to return to pre-pandemic levels of employment, income, and poverty after an expected economic contraction of 9% in 2020, the International Monetary Fund (IMF) warned on Tuesday, October 6.

The IMF urged the Mexican authorities to do more to boost Latin America’s 2nd largest economy with fiscal and monetary stimulus.

The latest forecast from the Washington-based IMF marked a slight improvement from an earlier projection of a 10.5% slump this year in Mexico, one of the countries hardest-hit by the coronavirus.

But in its latest report, the IMF said that the country’s gains over the past decade have been set back, and now “Mexico’s long-standing challenge of low growth appears set to worsen.”

It forecast that the economy will grow by 3.5% in 2021, and by close to 2% thereafter.

“Based on these projections, employment, income, and poverty will take several years to return to pre-pandemic levels,” it said.

Mexico’s health authorities have reported more than 82,000 deaths from the coronavirus, and around 12 million workers have lost their jobs, most from the informal sector. 

The IMF said a “two-speed” recovery was underway, with a rebound in manufacturing driven by external demand, though domestic demand remained weak.

The Fund said the government should implement a comprehensive package of near-term fiscal and monetary stimulus, and “credible” medium-term reforms to boost investment and growth.

President Andres Manuel Lopez Obrador has refrained from major fiscal stimulus to boost the economy, saying he wants to avoid saddling the country with huge debts.

The left-wing populist says his priority is helping ordinary Mexicans with social aid and loans.

“Larger temporary near-term fiscal support would alleviate current distress as well as limit lasting economic damage,” the IMF said, noting that the authorities were “providing very modest near-term direct fiscal support.”

It said the risks included a possible resurgence of COVID-19 as well as “prolonged disruption in labor markets, renewed global financial volatility, lower oil prices,” and adverse growth in key trading partners.

The Mexican economy suffered a record 17.1% contraction in the 2nd quarter of the year from the previous quarter.

The central bank warned last month that the Mexican economy is in danger of shrinking by 12.8% for the whole of 2020 if the pandemic worsens. – Rappler.com