Mexico’s economy celebrates three years of uncertainty with López Obrador

The Mexican economy celebrates this December 1 three years of uncertainty with the presidency of Andrés Manuel López Obrador, who has faced the historical crisis of COVID-19, but it has also caused internal upheavals.

Upon coming to power, López Obrador promised growth rates of 4% of the Gross Domestic Product (GDP) with the discourse “the poor first”, but in the middle of his six-year term now his challenge is for the economy and poverty to return to the levels prior to his government.

“What has remained in force or has been a constant is the uncertainty, in the first place what happened after the pandemic, that the economy was not on the right track,” says Héctor Magaña, coordinator of the Center for Research in Economics and Business (CIEN ) of the Tecnológico de Monterrey.

Historical crisis

In addition to about 3.9 million cases and almost 300,000 deaths, the fourth highest figure in the world, the COVID-19 crisis left Mexico with a historic contraction of 8.2% of GDP in 2020.

But the economy had already decreased 0.3% in 2019, the first year of López Obrador’s government, says Adriana García, coordinator of economic analysis of the initiative. Mexico, How are we doing?.

“Despite the fact that the balance in 2021 is negative largely due to the effects of the pandemic, the economic policy that this Administration had implemented since 2019 had already been accompanied by contractions,” he explains.

Likewise, since López Obrador came to power, 3.8 million poor people have been added, which went from 51.9 million in 2018 to 55.7 million in 2020, according to the National Council for the Evaluation of Social Development Policy (Coneval).

While the proportion of people in the middle class fell for the first time in eight years, going to 37.2% of the population in 2020 from a previous 42.7% in 2018, according to the National Institute of Statistics and Geography (Inegi).

“It certainly has to do with the effects of the pandemic, so it would be unfair to mention that this is a product of economic policy, but what is certain is that the government implemented the smallest economic package to combat the effects of the pandemic. between 2020 and 2021 ″, warns García.

Uncertain future

The government expects a rebound of more than 6% of GDP by 2021 anchored in the Treaty between Mexico, the United States and Canada (T-MEC).

Even so, this will be insufficient to recover what was lost by the crisis, considers the economist Enrique Cárdenas, president of the Vital Signs association.

“What I see ahead is a relatively low growth rate. A per capita GDP that will not recover its levels of 2018 until 2024 or 2025, perhaps, so that what is seen forward is a bit gray ”, he opines.

Faced with López Obrador’s austerity policy, Cárdenas highlights the budget balance that has allowed the stability of macroeconomic indicators and maintain public debt at a level close to 50% of GDP.

However, it also perceives “as a general characteristic, a loss of incentives for private investment, investment in general, which means that there are not very promising prospects for the future.”

Professor Magaña warns that inflation is the biggest challenge, which in 2021 accumulates a general annual rate of 7.05%, its maximum level in 20 years.

He also sees job precariousness, despite the fact that the unemployment rate is at 4.2% until the third quarter of 2021, and the president plans to close the year with almost 21 million formal jobs registered with the Mexican Institute of Social Security (IMSS), an unprecedented figure.

“The economy is already moderating its dynamism. If inflation control and job quality are not promoted, it is very likely that by the end of the six-year term, by 2024, the economy will have growth of around 2%, that is, it will maintain the same inertia as in previous six-year terms ” says Magaña.

“Attacks” on law and energy

In addition to external factors, in Vital Signs and Mexico, how are we doing? they perceive “weakness of the rule of law” as one of the main characteristics of economic policy.

“There have even been strong attacks on the rule of law, recently exemplified by the initiative to modify energy legislation,” warns Cárdenas.

The economist García enunciates as one of the greatest challenges for the last three years of Government what happens with the electricity reform of López Obrador, who seeks to limit private participation in the sector to 46% in favor of the state Federal Electricity Commission ( CFE), with some obsolete plants.

“Without enough energy, clean and cheap, Mexico could cease to be a destination for investment, both national and foreign, and that is very delicate for the future of the country,” he concludes.