Economic balance after 4 years of government

Exactly 4 years ago the current administration took over the reins of the country, generating great expectations about the direction that the Mexican economy would take. The balance of those 4 years of government is as follows. Analyzing the domestic market, the demand side grew considerably compared to the previous administration, for example, the Consumer Confidence Index went from 35 points in the second quarter of 2018 to 44 points in the same period of 2022. Likewise, the private consumption index that was at 117 points in mid-2018 increased to 122 points in October 2022, going through the big hole of the pandemic in the middle. One of the main explanations is undoubtedly found in the exponential growth of social programs financed by the government, currently at levels of 2.2 trillion pesos, an all-time high, all the data according to INEGI.

On the supply side, gross investment has not recovered pre-pandemic levels of around 3.8 trillion pesos, currently it is at 2.7 trillion. The foregoing is explained by the Business Confidence Index, which since mid-2018 has shown a clear negative trend, going from 50 points to 38 points in October 2022. Consequently, the production of goods and services does not has been balanced in the main economic sectors of the country. The dynamism of the agricultural sector has been very low, the Global Index of Economic Activity (IGAE) of this sector went from 113 to 124 points during the last 4 years. For its part, the industrial sector has shown a slight decline since the IGAE went from 105 to 100.8 points in the same period. The services sector has remained constant since throughout the period it has remained at 117 points on average.

The construction sector has suffered a sharp contraction, going from 31 billion pesos in mid-2018 to 24 billion pesos as of October 2022. Tourism activity remains at the same levels as before the pandemic, the Physical Volume Index is around 111 points. This is reflected in the average annual growth rate for this same period, which is 1.2%. It is easy to understand the reason for the current inflation. While the demand side continues to grow, the supply is stagnant, generating insufficient production to satisfy the domestic market, which leads to price increases. The answer to this? Increase in interest rate that makes loans more expensive, including productive ones; thus avoiding investment and development of old and new companies. Thus aggravating the situation already described. In general, a negative balance within the Mexican economy, which looks the same or worse for the following year.

*The author is research secretary at the Faculty of Economic and Business Sciences of the Universidad Panamericana.