Mexico's Central Bank: Covid-19 recession could continue through 2021

Such is the unpredictable scenario caused by the coronavirus crisis that the Bank of Mexico (Banxico) decided not to give an estimate for the Mexican economy this year. Instead, they chose to raise three possible scenarios, which at its best would mean a fall of up to 4.6% of GDP and at the most pessimistic would mean a deep recession that would continue over the next year.

Speaking via videoconference, Alejandro Díaz de León, Governor of Banxico, explained that, since this is a factor that is external to the economy, it is difficult to make an exact approximation to project its performance. He warned that the recovery of the economy will be determined by the extent of the pandemic and its impact on jobs and productive activity.

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"We have fewer tools to make accurate predictions about the scenarios, as well as about the recovery," Díaz de León said. For that reason, this time they did not set a range, as was done three months ago, when a growth forecast of between 0.5 and 1.5% was set.

One of the scenarios is that the impact on the economy will be type "V", the least pessimistic, with a fall of 4.6% this year and a recovery of 4% next year. Nevertheless, it is still far from the projection made by Secretary of Finance Arturo Herrera at the beginning of the crisis, which considered a collapse of the economy of -3.9%.

The middle scenario proposes a recovery of "Deep V", where the fall would be of 8.8% at the end of this year with a recovery of 4.1% on 2021. As for the worst scenario, of a "U" shaped dynamic, it forecasts a fall of 8.3%, and a negative number also in 2021: -0.5%.

As he explained, the main factors that will determine economic behavior are the duration of the social distancing measures; potential new volatility events -such as geopolitical issues- and the success of national and international support measures. He also sees the risks of loterm consequences of the pandemic, citing the disruption of the supply chains.

At the national level, he sees lower credit ratings for the sovereign and Pemex, continued weakness of aggregate demand components and failure to restore investor confidence as factors that could worsen the economic outcome.

On the contrary, it would be positive if the containment measures manage to be effective and that the start of the USMCA trade agreement leads to a greater investment than expected, he said.

It is worth remembering that since the beginning of the crisis several financial institutions in Mexico and abroad have made strong adjustments to their economic expectations for the country -sometimes up to twice in a single month- with estimates ranging from -6% to -10%.

Organizations such as ECLAC and Coneval have also been discussing the impact it will have on the growth of poverty. Along these lines, Deputy Governor Gerardo Esquivel stated that "poverty measurements are even more uncertain than those of the economy". up to 8.3%.

Such is the unpredictable scenario caused by the coronavirus crisis that the Bank of Mexico (Banxico) decided not to give an estimate for the Mexican economy this year. Instead, they chose to raise three possible scenarios, which at its best would mean a fall of up to 4.6% of GDP and at the most pessimistic would mean a deep recession that would continue over the next year.

Speaking via videoconference, Alejandro Díaz de León, Governor of Banxico, explained that, since this is a factor that is external to the economy, it is difficult to make an exact approximation to project its performance. He warned that the recovery of the economy will be determined by the extent of the pandemic and its impact on jobs and productive activity.

"We have fewer tools to make accurate predictions about the scenarios, as well as about the recovery," Díaz de León said. For that reason, this time they did not set a range, as was done three months ago, when a growth forecast of between 0.5 and 1.5% was set.

One of the scenarios is that the impact on the economy will be type "V", the least pessimistic, with a fall of 4.6% this year and a recovery of 4% next year. Nevertheless, it is still far from the projection made by Secretary of Finance Arturo Herrera at the beginning of the crisis, which considered a collapse of the economy of -3.9%.

The middle scenario proposes a recovery of "Deep V", where the fall would be of 8.8% at the end of this year with a recovery of 4.1% on 2021. As for the worst scenario, of a "U" shaped dynamic, it forecasts a fall of 8.3%, and a negative number also in 2021: -0.5%.

As he explained, the main factors that will determine economic behavior are the duration of the social distancing measures; potential new volatility events -such as geopolitical issues- and the success of national and international support measures. He also sees the risks of loterm consequences of the pandemic, citing the disruption of the supply chains.

At the national level, he sees lower credit ratings for the sovereign and Pemex, continued weakness of aggregate demand components and failure to restore investor confidence as factors that could worsen the economic outcome.

On the contrary, it would be positive if the containment measures manage to be effective and that the start of the USMCA trade agreement leads to a greater investment than expected, he said.

It is worth remembering that since the beginning of the crisis several financial institutions in Mexico and abroad have made strong adjustments to their economic expectations for the country -sometimes up to twice in a single month- with estimates ranging from -6% to -10%.

Organizations such as ECLAC and Coneval have also been discussing the impact it will have on the growth of poverty. Along these lines, Deputy Governor Gerardo Esquivel stated that "poverty measurements are even more uncertain than those of the economy".Mexico's Central Bank: Covid-19 recession could continue through 2021

Uncharacteristically, the Central Bank did not give a specific projection: it proposed three scenarios that anticipate a GDP decline of up to 8.3%.

Such is the unpredictable scenario caused by the coronavirus crisis that the Bank of Mexico (Banxico) decided not to give an estimate for the Mexican economy this year. Instead, they chose to raise three possible scenarios, which at its best would mean a fall of up to 4.6% of GDP and at the most pessimistic would mean a deep recession that would continue over the next year.

Speaking via videoconference, Alejandro Díaz de León, Governor of Banxico, explained that, since this is a factor that is external to the economy, it is difficult to make an exact approximation to project its performance. He warned that the recovery of the economy will be determined by the extent of the pandemic and its impact on jobs and productive activity.

"We have fewer tools to make accurate predictions about the scenarios, as well as about the recovery," Díaz de León said. For that reason, this time they did not set a range, as was done three months ago, when a growth forecast of between 0.5 and 1.5% was set.

One of the scenarios is that the impact on the economy will be type "V", the least pessimistic, with a fall of 4.6% this year and a recovery of 4% next year. Nevertheless, it is still far from the projection made by Secretary of Finance Arturo Herrera at the beginning of the crisis, which considered a collapse of the economy of -3.9%.

The middle scenario proposes a recovery of "Deep V", where the fall would be of 8.8% at the end of this year with a recovery of 4.1% on 2021. As for the worst scenario, of a "U" shaped dynamic, it forecasts a fall of 8.3%, and a negative number also in 2021: -0.5%.

As he explained, the main factors that will determine economic behavior are the duration of the social distancing measures; potential new volatility events -such as geopolitical issues- and the success of national and international support measures. He also sees the risks of loterm consequences of the pandemic, citing the disruption of the supply chains.

At the national level, he sees lower credit ratings for the sovereign and Pemex, continued weakness of aggregate demand components and failure to restore investor confidence as factors that could worsen the economic outcome.

On the contrary, it would be positive if the containment measures manage to be effective and that the start of the USMCA trade agreement leads to a greater investment than expected, he said.

It is worth remembering that since the beginning of the crisis several financial institutions in Mexico and abroad have made strong adjustments to their economic expectations for the country -sometimes up to twice in a single month- with estimates ranging from -6% to -10%.

Organizations such as ECLAC and Coneval have also been discussing the impact it will have on the growth of poverty. Along these lines, Deputy Governor Gerardo Esquivel stated that "poverty measurements are even more uncertain than those of the economy".