Mexico’s economy will continue to struggle unless there is a “radical shift” in the country's politics, according to experts from Rice University’s Baker Institute for Public Policy.
The Mexican economy has seen its largest decline in decades under President Andrés Manuel López Obrador, according to a new report by Tony Payan, director of the Center for the United States and Mexico at the Baker Institute, and Jose Ivan Rodriguez-Sanchez, research scholar for the center.
“This collapse is primarily due to the government’s inadequate public health strategy in dealing with COVID-19 and the absence of an economic stimulus response to address the effects of the pandemic on the country’s gross domestic product (GDP),” they wrote. “There is also a persistent public insecurity problem and a growing climate of uncertainty for investors and businesses due to the federal government’s hostile rhetoric and policies toward the private sector.”
Payan and Rodriguez-Sanchez argue that both the political landscape and economic performance predictions for 2021 are discouraging. Total investment in Mexico has decreased dramatically since 2018, and economic performance will not be strong enough to make up for lost ground from 2019 and 2020.
“The government is creating massive uncertainty — through both its actions, such as questioning the motives of private actors and changing market norms from one day to the next, and its conspicuous inaction, such as the absence of a strategy to deal with public insecurity and its failure to develop an economic stimulus policy in the face of the pandemic,” they wrote. “This uncertainty is almost guaranteed to continue. Consequently, investors, who had little confidence in the government before the pandemic, are even more hesitant to invest in Mexico now.”
The recovery of Mexico’s economy will depend in part on factors like tourism and remittances, as well as manufacturing and oil investments. Tourism accounted for approximately 8.5% of Mexico’s GDP from 2010 to 2019, but it contributed less that 5% in 2020 due to pandemic travel restrictions.
The reduction in tourism also affected the labor market, since the sector generated 2.3 million jobs — 5.5% of the country’s total — in 2019. In 2020, no new jobs were created in this sector, and many that existed were lost.
Remittances — money earned in a foreign country and sent to family in the worker's homeland — are among the most important sources of income in Mexico, according to Payan and Rodriguez-Sanchez. In 2020, remittances trailed only the auto industry among sources of income.
“In fact, remittances have become so important to Mexico that they are as large as the foreign direct investment flows the country receives,” they wrote.
The authors argue that Mexico’s economic recovery must not rest on these factors — it should begin with a “radical shift in the way the López Obrador administration makes decisions.”
“Changes are unlikely to come any time soon, given López Obrador’s overriding ideological orientation,” they wrote. “Unfortunately, this means Mexico’s president will probably continue to make political decisions that will lead to market uncertainty and a much more sluggish and difficult recovery.”