Rebound is not recovery

The preliminary figure for the third quarter showed a disappointing contraction of GDP of 0.2%, corresponding to an annualized rate of -0.92 percent. The dimension of the slowdown is more appreciated when considering the annual figure for the third quarter: a growth of 4.9 percent. Considering that that period of 2020 corresponded to a low base, a data was expected at least above 6 percent.

The economy had shown positive growth during the first half of 2021. However, as several analysts have insisted, this rate does not correspond to a recovery. After the severe recession of -8.5% in 2020, it is natural that as the main effects that caused this contraction pass, economic activity registers a classic rebound. But this should not be confused with a structural improvement in economic activity. That is not yet observed. Another regularity of post-recession cycles is that the rebound propels economic growth for at least one more year, that is, the second year after a recession shows expansions similar to those of the first year of rebound. This was the case in the two years after the recessions of 1995 and 2009. However, that will not happen in 2022. Today, the consensus of analysts is an annual rate of 6% in 2021 and just 2.9% in 2022.

Why is the economy slowing down? The slower pace of the US economy is a key factor. The GDP of that country barely expanded 0.5% in said quarter, equivalent to an annual rate of 4.9 percent. In other words, its economy “pulled” the Mexican economy much more weakly, affecting the way of foreign trade. Another external factor that has been talked about a lot is the global shortage of key inputs in the value chain, such as micro-capacitors used in the automotive industry. This shortage will last into 2022.

Among the internal factors that decelerated GDP, the entry into force of the law that wrongly regulates outsourcing stands out. But the most important element is what has been reiterated time and again: the absence of private investment, whose current level corresponds to that of 2011. Business confidence has strongly eroded in these three years of government, mainly because López Obrador is convinced that it does not require the private sector to generate opportunities for economic growth and jobs. Its model of statist concentration, its populist style and its violation of contracts inhibit investment, which has been reflected in worrying recent figures of capital outflows. The electricity reform initiative, if implemented in its current version, would cause incalculable damage to economic activity.

Unfortunately, the president is not in sight to correct his decision or his vision. It will continue to divide society and harass the private sector in an attitude closed to dialogue and negotiation. Economic prosperity is an important ally in winning elections, so you should be concerned that how we are doing, it is possible that the lowest average GDP growth in recent six-year terms will be recorded.

Twitter: @frubli

Federico Rubli Kaiser


IMEF Magazine

Economist graduated from ITAM. He has master’s and doctoral studies in monetary theory and policy, and international finance and trade. Columnist for El Economista. He has been an advisor to the Banxico Governing Board, Director of Institutional Linking, Director of External Relations and Coordinator of the Governor’s Office, Manager of External Relations, Manager of Macro-Financial Analysis, Assistant Manager of Macroeconomic Analysis, Assistant Manager of International Economy and Analyst.

Leave a Comment