Andres Manuel Lopez Obrador got here to energy promising to make Mexico’s financial system much less depending on its large northern neighbor. His pandemic insurance policies are having the other impact.
The Mexican president has run one of many world’s m o s t a u s t e r e b u d g e t s by way of the covid-19 disaster, declining to borrow extra cash because the financial system slumped. The stimulus that prevented a good deeper recession, and is about to drive a rebound this 12 months, is coming from the U.S. as an alternative.
Mexico has benefited in two key methods from the U.S. pandemic spending, which is about to go $5 trillion with the Biden administration’s new legislation.
Remittances surged to a report, as Mexican expats acquired stimulus checks and despatched among the cash dwelling. And exports additionally hit an all-time excessive, as a result of the issues Individuals needed to purchase within the period of lockdowns and work-from-home — like new televisions or laptop gear — had been an excellent match for Mexico’s manufacturing trade.
The upshot is that U.S. stimulus added about three.5 proportion factors to Mexico’s gross home product in 2020 — seven occasions as a lot because the fiscal measures taken by the nation’s personal authorities, in keeping with JPMorgan Chase & Co. calculations. This 12 months’s numbers could also be equally lopsided.
That Mexico is having “any form of restoration is exactly due to the stimulus bundle within the U.S.,” mentioned Gabriel Lozano, JPMorgan’s chief Mexico economist. It “to some extent compensated for what wasn’t delivered from the federal government.” What Lopez Obrador promised to ship, earlier than and after his election in 2018, was an financial system with a stronger home engine that might make it much less reliant on exports to the U.S. — and one the place the poor, agrarian south would get a justifiable share of the proceeds of development. “We stay in an interconnected, globalized world, however we’ve got to take care of our personal,” the president mentioned in 2019.
What he’s presiding over proper now’s a two-speed restoration propped up by U.S. demand — and skewed towards Mexico’s wealthier north, the place a lot of the factories are.
After final 12 months’s eight.2% stoop in GDP, the worst in additional than a century, the home financial system has been gradual to get better and tourism stays hobbled by journey restrictions. However exports had been up 5.5% within the fourth quarter from a 12 months earlier.
By January, formal employment within the industrialized northern border states had greater than recouped its pandemic losses, climbing 1.9% from a 12 months earlier. In the remainder of the nation, it was down three.9% — with ladies taking the most important hit.
In the meantime, remittances reached $41 billion final 12 months, about four% of GDP. Virtually all of that cash got here from the U.S. Lopez Obrador hailed Mexicans dwelling there as “heroes” for his or her monetary help.
The elevated financial reliance on the U.S. dangers turning into entrenched, mentioned Jessica Roldan, chief economist at native brokerage Finamex.
“We’ll maintain relying on what occurs externally to have the ability to develop,” she mentioned. “It’s like a bicycle that doesn’t have sufficient energy to maintain going ahead.” By commonplace measures, Mexico has room to offer extra funds help for its personal financial system. Its nationwide debt is average by emerging-market requirements at 52% of GDP, and with an investment-grade credit standing it may possibly promote 10-year greenback bonds at round three%. Lopez Obrador has allotted some further money for investments, particularly within the state oil firm, and social packages. However usually he’s outlined a philosophy fully at odds with the borrow-and-spend insurance policies which have grow to be orthodoxy for a lot of the world within the pandemic.
The president, identified for his frugal life-style, says his model of austerity is concentrated on trimming wasteful spending by different public officers. He invokes previous bailouts — when he says politicians ran up public debt to assist personal cronies — as examples of the type of corruption his authorities will struggle.
The hawkish method has labored in its personal phrases, making Mexico considered one of few nations to put up a funds surplus earlier than curiosity funds in 2020. Many economists say that’s come on the value of a deeper stoop, and a slower restoration, than was crucial.
There’s not a lot signal that Mexico’s financial under-performance has damage Lopez Obrador’s standing with the general public. His approval score stays above 60%. A lot of his help is concentrated amongst staff within the casual financial system, who noticed social packages broaden earlier in Lopez Obrador’s presidency and have low expectations for extra authorities assist.
Deputy central financial institution Gov. Gerardo Esquivel, a Lopez Obrador appointee, says there’ll be a payoff in the long term for the federal government’s funds restraint. Mexico “will exit the pandemic a lot stronger than different rising economies,” he mentioned.
Esquivel acknowledges that Mexico is getting loads of assist from its northern neighbor. Exterior demand “actually helped cease the contraction from being so drastic in 2020,” he mentioned. And that ought to stay the case into 2021 — partly because of “the crucial stimulus program” within the U.S.
That $1.9 trillion plan arrives at a handy time for Mexico, the place analysts count on the financial system to shrink once more within the first quarter. However the authorities can be silly to wager on a continued bailout from U.S. development, as a result of the circumstances that led to surging demand for items manufactured in Mexico received’t final, mentioned Alonso Cervera, chief Latin America economist at Credit score Suisse.
As vaccines roll out and the financial system reopens, Mexico’s tourism trade might get a lift, however total “individuals within the U.S. will likely be demanding providers — eating places, museums, concert events, sports activities occasions, journey — and in that case, Mexico received’t take part considerably,” he mentioned. “We should be aware of that.”