The data from the timely indicator of economic activity for the month of December last year released by the Inegi (zero growth compared to November and a fall of 0.2% compared to December 2020) confirms that after the rebound of the economic activity during the second quarter of last year, economic activity was practically stagnant during the second half of 2020. What was observed in the first half was just that, a tepid and short-lived rebound, not a recovery.
Even worse, after the 0.4% drop in GDP in the third quarter (compared to the second quarter), if the IGAE data is confirmed, the GDP would also have contracted in the fourth quarter by 0.5 percent. For all of 2021, the GDP would have only grown by around 5%, very far from recovering the level of 2018 after the contraction of 0.4% in 2019 and 8.5% in 2020. Thus, in the first three years of this government, the accumulated drop in GDP will have been 3.6%; in terms of per capita GDP, the accumulated contraction would have been 7 percent.
Given the dismal evolution of economic activity during the second half of last year, growth projections have been revised downwards. For example, in the survey conducted by Citibanamex last week, the median expected growth for this year is 2.5%, significantly lower than the 4.1% projected by the government.
One could say, “bygones are bygones” (“bygones are bygones”) and we better look ahead. Given what happened during the first three years of his administration, if the president were truly committed to a more promising future for Mexicans, he would correct several of the decisions he has made, which have negatively affected economic activity and, worse yet, reduced the growth potential of the economy, even below the 2% average growth during the period 1983 – 2018. Having violated the rule of law and inhibiting investment in physical capital costs a lot and, from a longer-term perspective, having neglected quality education at all levels of schooling, as it has done, with the consequent negative impact on investment in human capital costs even more; a country with low levels of human capital cannot achieve high levels of development.
But not. With a misdiagnosis of why past growth was so low on average, increasingly distant from reality living in a parallel universe and thinking that it is possible to return to an economic model similar to the one that existed in the seventies of the last century (a closed and oiled economy with obese and inefficient government companies in the energy sector) and a centralized political power without checks and balances, it is clear that it is not going to correct many of the decisions it has made. Furthermore, it will continue to make the wrong decisions that will reinforce the causes for which growth potential has been reduced.
In the near future, two variables stand out that would lead to lower growth. The first is that the electrical reform be approved in Congress; would be a dagger stuck straight into the heart of the economy: lower investment, higher production costs of all goods and services, loss of international competitiveness, growing pressure on public finances, violation of different international treaties with the consequent demands for compensation and reprisals and the impoverishment of the population.
Second, even without the electricity reform, there will be increasing pressures on public finances. More resources for Pemex, greater subsidies to the CFE, more resources to the military, ever-increasing cost of pensions, etc., having already squandered all the saved funds and funds in trusts and canceled innumerable programs. The fiscal deficit will increase and its financing with internal and external indebtedness will displace private investment.
The first triennium was bad; don’t expect the second to be much better.
Economist and professor
Point of view
Knight of the National Order of Merit of the French Republic. Medal of Professional Merit, Ex-ITAM.