The Mexican economy grew 5% in 2021, insufficient to compensate for the drop caused by the pandemic, according to final data published this Friday by the National Institute of Statistics and Geography (Inegi). The recovery fizzled out during the latter part of the year, with no growth in the fourth quarter. This is a pyrrhic improvement over preliminary data released a month ago that pointed to a technical recession. With the new figure, GDP stood at levels similar to those of the third quarter of 2016.
The recovery has punctured right through the most important sector of the economy. The tertiary sector, which includes commerce and services, fell by 0.6% in the fourth quarter compared to the previous three months. Its weight, more than 60% of GDP, has dragged down the rest of the economy, despite modest progress in other areas. Industry and the agricultural sector advanced by 0.4% and 0.2%, respectively.
The positive side of the data published this Friday is the slight improvement compared to the preliminary figures. A month ago, the Inegi advanced that the economy had fallen by 0.1% in the fourth quarter of the year, which was added to the fall of 0.4% in the previous quarter. The record of two consecutive setbacks is considered a technical recession by economists.
President Andrés Manuel López Obrador then ruled out that there was a recession – the definitive data has given him the reason for very little – and affirmed that Mexico was going to grow 5% in 2022, a rate that most analysts consider unrealistic. Its own Ministry of Finance estimates a growth of 4.1% and the Bank of Mexico, one of 3.2%. In its latest forecast, released this week, the OECD cut its projection from 3.3% to 2.3% for this year. If confirmed, the recovery of activity levels prior to the pandemic would not arrive until 2023, at the earliest. In 2020, GDP sank 8.2%, the biggest drop since the 1930s.
On another front, inflation continues to weigh on the economic outlook. The National Consumer Price Index (INPC) registered an annual increase of 7.22% in the first half of February. It is 0.42% more than in the previous two weeks, which breaks a streak of several fortnightly decreases. The Bank of Mexico has recognized that inflation expectations for 2022 and 2023 have increased, according to the minutes of the last meeting published this week. The Russian invasion of Ukraine threatens to send world oil and gas prices skyrocketing.
The Bank of Mexico has responded to inflation, which is far from the institution’s 3% target, with increases in interest rates. At the beginning of February, the institution raised it for the sixth consecutive time. The increase was 50 basis points to reach 6%, the second highest among the largest economies in Latin America. The Bank’s new governor, Victoria Rodríguez, voted in favor, which cleared up any doubts about the official’s position on price stability.
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