Mexico’s economy continues to fluctuate after a dire spike in COVID-19 cases that kept 50% of states in red within the traffic-light system in January and February. Uncertainty still surrounds Mexico’s growth in the future leading up to the elections on June 6. Firms need to monitor the following trends:
- Mexico’s external sector has greatly benefited from the strong US economic recovery and the Biden administration’s stimulus package. How long will this continue?
- Firms will continue to deal with a hostile operating environment stemming from the policies of President Andrés Manuel López Obrador’s (AMLO’s) administration that affect investment, particularly toward the key energy sector.
- AMLO might try to push forward other initiatives, such as tax reform or further rollback of the 2014 energy reform, which will continue to affect private investment, currently the weakest element in Mexico’s GDP.
- Slow vaccine rollout continues to stall progress on achieving herd immunity.
Mexico’s growth will continue in 2021, but downside risks remain high mainly driven by government policies.
The economy is likely to perform better in the second half of the year, but downside domestic risks could stall it. In 2021, Mexico’s GDP will rebound by 4.1%, mainly driven by exports and consumption. The US economic recovery at 6.5% will lift Mexican exports and manufacturing, and it will keep remittance inflows positive throughout 2021. Firms should expect weak investment in 2021 due to AMLO’s policies.
The labor market is unlikely to fully recover in 2021, as investment will remain weak. The López Obrador administration has kept its policy of not providing a financial lifeline to the private sector since the pandemic hit Mexico. Job creation will remain weak throughout 2021, driven by lackluster investment. Firms should expect that consumer spending will be sustained by cash transfer and remittance inflows in 2021 and that the labor market is poised to recover to pre-pandemic levels in 2022.
Read our Mexico Market Review to learn how to separate signal from noise amid constant change in Mexico’s business landscape. Dive into topics such as the economic outlook for Mexico, the FX and inflation outlook, and industry snapshots.
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