The OECD lowers Mexico’s growth expectation to 3.3% by 2022

The Organization for Economic Cooperation and Development (OECD) foresees that the Mexican economy will close 2021 with a Gross Domestic Product (GDP) of 5.9% and have an expansion of 3.3% in 2022, according to the December update of its flagship report “Economic Outlook”.

This represents a deterioration with respect to the expectations disclosed in September, when the agency expected growth of 6.3% for 2021 and 3.4% for 2022.

In his report, the results of which will be officially presented today by his secretary general, Mathias Cormann, the agency added that for 2023 the growth expectation is 2.5 percent.

With a growing proportion of the population vaccinated and the labor market improving, domestic consumption will be a key driver of growth, “said the multilateral body.

He also explained that exports will continue to benefit from the strong recovery in the United States.

Inflation worries

He noted that the monetary politics it will have to tighten gradually if inflation does not converge towards the central bank’s 3% target. Currently inflation is around 7%, according to data at the end of the first half of November.

“Inflation has increased considerably. Given Mexico’s high integration into international value chains, global inflation and changes in supply chain costs are exerting significant pressure on both headline and core inflation, “he said.

Tax policy help

Refering to fiscal policy, the OECD said that while it remains prudent, it is less restrictive than contemplated in the 2021 budget, which slightly supports the ongoing recovery.

Analysts of the agency foresee that the public deficit increase to 3.2% of GDP in 2021 (from 2.9% of GDP in 2020), remain virtually unchanged in 2022 and decline thereafter. It is estimated that the public debt will stabilize around 51% of GDP.

Increase collection

The document states that Mexico should improve its collection level to meet social spending needs.

“The proportion of taxes in the Mexico GDP is the lowest of the OECD and it is lower than that of other countries in the region. To meet the growing needs for spending on education, health or social protection, without renouncing the commitment to debt sustainability, it would be necessary to increase tax revenues, “said the agency.

As a recommendation, the agency said that it is necessary to relaunch investment and increase productivity through access to financial services, promoting competition in the markets and speeding up the legal execution of contracts, which would allow small and medium-sized companies to invest more, grow and increase productivity.

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