Central region registers the slowest recovery in times of reactivation: Banxico

Although by the third quarter of 2022 the subnational economies will continue to recover and reach pre-pandemic levels, the central region will continue with a slower recovery, projected the Report on the Regional Economies of the Bank of Mexico (Banxico).

The document, which divides the country into four regions: north, central north, center and south, specified that the level of economic activity in the central zone will be slightly lower than that observed in the first quarter of 2020.

The region made up of Mexico City, Hidalgo, Guanajuato, the State of Mexico, Morelos, Puebla, Querétaro and Tlaxcala depends on the services sector and has suffered more intensely from the effects of the reform in terms of labor subcontracting, added to the fact that it also depends of the recovery of the Gross Domestic Product (GDP) of Mexico City.

However, it is also expected that for the following months the economic activity of the center may advance due to the promotion of some services, such as tourism, in addition to manufacturing and construction.

The report specified that for the other three regions, economic activity will continue to recover, reaching levels similar to those of the fourth quarter of 2019, prior to the health emergency; but everything will be accompanied by a slowdown.

“It is expected that in the north and the central north it will continue to be above the activity levels observed in the first quarter of 2020, while in the south it would present levels similar to that reference,” the analysis deepened.

The expansion of economic activity in the north, which includes Baja California, Chihuahua, Coahuila, Nuevo León, Sonora, and Tamaulipas, is mainly due to the favorable performance of manufacturing, mining, and the agricultural sector.

Within the manufacturing sector of the northern region, it stands out that there is a process of relocating production lines to supply the United States market (known as nearshoring).

It is anticipated that the growth of the north center – integrated by Aguascalientes, Baja California Sur, Colima, Durango, Jalisco, Michoacán, Nayarit, San Luis Potosí, Sinaloa and Zacatecas – has been supported by some tertiary activities such as commerce, tourism and the agricultural sector.

Meanwhile, the slight expansion in the south –Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, Tabasco, Veracruz and Yucatán– would be associated with the performance of manufacturing, the agricultural sector, the construction of large infrastructure projects, as well as the sightseeing. Especially, this region benefited from the growth in the arrival of North American cruise passengers and South American tourists, in addition to the growing interest of travelers from the United States and Canada to go to the beaches of the Mexican Caribbean.

From January to September, occupancy levels were favored, especially in hotels in the adults-only segment. Additionally, in Veracruz and Yucatán, high levels of occupancy were generated by musical events that stimulated domestic tourism.

Regarding the factors that would be generating this slowdown for the three regions, it is that there will also be a contraction in the manufacture of transportation equipment; derived from the fact that logistical problems have continued, as well as the increase in prices and shortages of industrial inputs.

Another reason that the document highlighted is that the chemical industries of these regions are presenting pressures due to the increase in natural gas prices.

Jobs

During the third quarter of 2022, various labor market indicators improved their performance; For example, the number of permanent and eventual urban jobs affiliated with the IMSS continued to rise in almost all regions of the country.

However, in terms of registered jobs recovered, the central region lags behind the others.

“In particular, with seasonally adjusted figures, in the center the indicator was located in November 2022 at a level 1.5% above that registered in February 2020. On the other hand, in the north, central north and south, it is 7.1, 4.6 and 4.1% above said level, in that order”, the Banxico publication deepened.

The increase in the number of jobs affiliated with the IMSS came from the expansion of formal employment in services and commerce, as well as manufacturing in the central regions, and construction in the south.

Inflation worries the private sector

Inflation could be the main obstacle for the economic recovery of the subnationals, agreed the local private sector.

The president of the Council of Chambers and Business Associations of the State of Mexico, Gilberto Sauza Martínez, explained that due to the increase in the inflation rate, where the last increase of 10.5% stands out, they carried out an analysis on what could happen in the short term.

It is projected that consumers will not purchase goods and services, added to the fact that companies stop their expansion plans, since they will hardly pay an interest rate above 20 percentage points.

“Because at this time it not only impacts credit to the population, but also affects the execution of productive investment, which implies the development of companies and the generation of jobs with better income levels,” he deepened.

In addition to stopping the consumption of business credits, the generation of jobs with better income levels is also put at risk, while on the side of the public sector the execution of productive investment will stop.

“It is time for Banco de México not to be reactive to what is happening in the United States, but to start generating strategies that are much more effective and do not affect the daily economy of all citizens. A reference rate of 10.5 means that a company’s indebtedness can reach up to 20 points and that limits its expansion possibilities”, he added.

He said that given the current scenario, the federal government should propose, jointly with the Bank of Mexico, a parallel strategy to control inflation that is not based only on the increase in credit.

The businessman presented a three-axis strategy, among which the promotion of greater investment in infrastructure that speeds up the movement of goods stands out.

estados@eleconomista.mx