Mexico has never faced anything similar: a 17 percent GDP drop in the 2020 second quarter from the previous quarter. If this decline trend lasted a year, it would lead to a 53.2 percent contraction of the Mexican economy, twice the US figure. The Covid-19 pandemic lockdown accelerated the destruction of a section of the traditional Mexican economy already undermined by technological change.
While the Mexican economy suffered a sudden collapse, we are only realizing the implications of the catastrophe in slow motion. We all know now the devastating economic data, but the tragic life stories behind Mexico’s calamitous unemployment and death figures are less noticeable during lockdown.
Something similar happened when Covid-19 arrived to Mexico. Thanks to the chaotic scenes in Spain and Italy, we knew that it was a great risk but many in Mexico thought it would not affect us as hard, and Mexico reacted in slow motion. The current outbreak in Spain is a new warning.
The Mexican government is in denial. At the beginning, it thought that Covid-19 was less severe than the 2009 AH1N1 influenza pandemic. Now, the Mexican government is watching the country’s economic collapse from the bleachers: orthodox neoliberals who believe that the market will adjust itself.
President Andrés Manuel López Obrador (AMLO) says that the worst is behind us. He has repeated the phrase on so many occasions that it sounds like a joke. Perhaps AMLO is right in terms of a GDP drop (hopefully). But the hole Mexico is in is very deep. Last quarter’s GDP levels are like what they were back in 2010.
The Mexican economic recovery will be very slow, slower than the rest of the world given the government’s inaction. The third quarter could see some recovery when compared to the second, but it will take a long time for the country to go back to 2018 GDP levels, the year AMLO rose to power. With good luck we would see this in 2024, the year AMLO ends his six-year term. This, if the government do things well. Mexico will have gone from being a country experiencing mediocre economic growth to one undergoing a negligent economic recession.
Job destruction has decreased according to official data. In June, Mexico lost 83,000 jobs in the formal economy compared to the 344,000 lost in May. There are still no official figures for July. However, the hiring of new employees has not started yet and when it happens it will be in slow motion. A first result of the current crisis will be an increase in informality, the only way out for those Mexicans seeking to earn some income. But even in the informal economy, average incomes will decrease, given the decline in the purchasing power of Mexicans.
Economic recovery will be very uneven. Covid-19 accelerated the disappearance of companies that already had problems or of sectors of the Mexican economy that already faced great challenges. Tens of thousands of other Mexican companies will go bankrupt and many of those that survive will end up smaller and weaker. One example is the Mexican airline sector where if companies are able to remain afoot, they will be a shadow of what they were, with far fewer planes and less flights for Mexican consumers to choose from.
The largest companies will tend to survive. This will lead to a greater concentration of economic activity among a few companies.
Last week, AMLO said: “The policy of supporting the poor is helping us a lot, the decision to inject resources at the low income level so that people do not suffer, so that the poorest people have income”. AMLO is either being lied to, he is lying to himself or he is lying to us. Mexico’s poverty assessment agency (Coneval) estimates that the number of Mexicans living in poverty and extreme poverty will increase by at least 9.8 and 10.7 million, respectively. This under the assumption that the Mexico’s GDP falls by 6 percent in 2020. Today, however, most forecasts agree that Mexico’s economic fall this year will be of around 9 percent of GDP.
Using the bully pulpit, AMLO has been able to center public debate on his daily press conferences, his decision to raffle off the Presidential jet, his refusal to wear face mask and the renewed corruption scandal of former Pemex CEO, Emilio Lozoya. Mexico’s public debate should rather focus on the strategies to minimize the economic damage and the deep family and social scars it will leave.
AMLO’s political talent for transforming the Lozoya corruption scandal into a great circus, the discredit of opposition parties and the country-wide lockdown may have led the President believe that he will not face big political costs next year. I believe that these will show up in slow motion and the results of Mexico’s 2021 midterm election will reflect them.
* Carlos Elizondo Mayer-Serra is professor at the School of Government and Public Transformation at Tec de Monterrey, in Mexico City. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @carloselizondom
