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Mexico’s GDP would grow 5% in 2021: OECD

The Organization for Economic Cooperation and Development (OECD) projected that Mexico‘s GDP will expand 5% in 2021.

In the first half of the year, it is estimated that the growth was mainly due to exports.

In the second half of 2021 and in 2022, with a greater participation of the vaccinated population and the gradual improvement of the labor market, domestic consumption will also strengthen and become a key growth engine for Mexico’s GDP.

Investment will also pay off, in part thanks to planned infrastructure projects.

For the OECD, the uncertainty remains very high.

In the event of a significant increase in infections, the re-establishment of containment measures would be necessary, hampering economic activity.

While interruptions in the deployment of vaccination would delay the recovery of private consumption, inflation may be higher than anticipated, eroding purchasing power, particularly of vulnerable households.

Financial volatility in other emerging market economies can trigger greater global risk aversion, reduce net financial inflows, and increase Mexico’s financing costs.

At the same time, the flexible exchange rate is helping the economy absorb external shocks, with additional support provided by ample international reserves, US dollar swap lines and precautionary lines of credit.

Mexico’s GDP

On the positive side, if the recovery of trading partners is stronger than expected, exports and job creation could be stronger.

Meanwhile, supply chain integration could be further deepened thanks to the updated trade agreement with the United States and Canada, which came into effect in July 2020.

Containing new Covid-19 outbreaks and speeding up vaccination as much as possible are key short-term priorities.

Always from the perspective of the OECD, the fiscal prudence of recent years and the rigorous management of the public debt provide Mexico with some space for additional temporary fiscal support, which could be aimed at the people and companies most affected by the pandemic.

Phasing out regressive tax breaks could strengthen revenues in an inclusive way, creating additional fiscal space that would allow the government to strengthen social policies and public investment to facilitate the transition to a greener and more digital economy.

 

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