By Lorena Jiménez Salcedo*
The economic dynamics of Mexico has begun to be negative as a result of four key factors:
End of the Bubble for Consumer and Fictional Investment
In recent years, Mexico’s economic growth has been promoted largely due to high consumption and investments that, in many cases, were not backed by sustainable productive growth. However, this dynamic is coming to an end due to:
1. The reduction of purchasing power as an effect of accumulated inflation and loss of land that real wages are experiencing.
2. The increase in private indebtedness, which will also affect consumption.
3. The lower remittance flow as a result of the new restrictions imposed by the Trump administration to migrants.
4. Short -term investments without impact on productivity: public works of low or zero profitability that, contrary to their original objective, are contributing to reduce national economic dynamism.
Limited Government Fiscal Margin
The Government of Mexico faces serious restrictions to use public spending as a tool to stimulate the economy due to:
1. The high levels of public debt, which today put at risk the credit rating of the country and stimulate cuts to financing.
2. The reduction of tax revenues, since there has been no efficiency in increasing the tax base, but more indebtedness has been resorted to.
3. Federal commitments in social programs, pensions and flagship projects of the past and current administration, which hang public spending and reduce investment in productive infrastructure.
4. A possible scenario of spending cuts (but not to social programs), which will affect the country’s economic development and tithe the federal capacity to use public resources as a recovery tool.
Loss of growth trend
Mexico has lost the impulse given by industrialization, commercial integration and structural reforms of yesteryear. Today the scenario is:
1. Growth well below the potential. Our country has lost about 10% of its long -term growth trend, which means that it is producing much less than it could under normal conditions.
2. Lack of private investment as a result of uncertainty in the political environment and the absence of a solid institutional framework.
3. While the United States economy has shown a robust postpandemics recovery, Mexico has failed to capitalize at all this recovery, which has generated a greater lag compared to its main trade partner.
4. Structural problems such as insecurity, lack of rule of law and infrastructure deficiencies, which have prevented Mexico from taking advantage of opportunities such as nearshoring and the relocation of companies.
Accelerated institutional destruction
The weakening of the economic and political institutions of a country has negative effects on the confidence of investors and economic stability. In Mexico, this process has accelerated in recent years due to:
1. attacks on autonomous organs (INE, Banxico, Scjn).
2. Lack of clear rules for investment, with changes in regulations without prior consultation and arbitrary decisions (Electric reform, cancellation of the AICM).
3. Public insecurity at alarming levels, which has relevantly affected sectors such as transport, agribusiness, trade and tourism.
4. The lack of effective application of the law and the growth of impunity, which have made business doing business in Mexico more and more risky.
With these elements, although there is still no imminent recession in technical terms (two consecutive quarters of GDP contraction), Mexico faces a period of stagnation that, if aggravated, could lead to recession.
Given this scenario, citizens must take measures to protect themselves from economic uncertainty, seeking:
1. Strengthen your savings to face economic fluctuations.
2. Diversify your income with productive projects such as ventures or investments.
3. Develop new skills and capacities to increase your own employability.
4. Participate actively in public opinion to exercise a real counterweight against government decisions that affect micro and macroeconomy.
Companies must also be activated to mitigate risks and take advantage of opportunities in this environment:
1. reducing costs without affecting productivity.
2. Diversifying markets and customers, looking for new commercial opportunities, especially in international markets, to reduce the dependence of the local economy.
3. Investing in technological innovation (IA), that allows them to adapt to digital transformation and automation.
4. Properly managing its financial risks, evaluating exposure to debt and exchange rate, as well as maintaining a solid financial structure.
Mexico faces a complex economic scenario that, if it is not handled properly, could lead to a recession. Citizens and businessmen must act with prudence, diversification and strategic vision to mitigate risks and take advantage of opportunities in this new environment. #Opinioncoparmex
Contact:
*Lorena Jiménez Salcedo is president of the National Social Welfare Commission
The opinions expressed are only the responsibility of their authors and are completely independent of the position and the editorial line of Forbes Mexico.
Follow business information and today in Forbes Mexico
