Banxico estimates that Mexico’s GDP will grow up to 7 percent this 2021

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The Bank of Mexico foresees that the range of expansion of the Gross Domestic Product will be between 5% and up to 7% due to a better performance of the economy in the first quarter of the year.

The Bank of Mexico (Banxico) opted for optimism and improved its growth forecast for 2021 from 4.8% to 6% in the central scenario.

In this scenario, the central bank foresees that the range of expansion of the Gross Domestic Product (GDP) will be between 5% and up to 7% given a better performance of the economy in the first quarter of the year compared to previously anticipated, as the expectation that from the second quarter the gradual recovery of the economy will present itself at a higher rate.

“This is due to the effect of the strength of external demand, particularly in view of the large fiscal stimulus granted in the United States, and due to the reactivation of domestic demand due to the greater advances in the vaccination process of the population and the gradual elimination of restrictions. to the mobility adopted to face the pandemic ”, explained the Banxico in announcing its Quarterly Inflation Report.

If growth materializes in 2021 close to the upper part of the interval, which is 7%, economic activity would recover in the last quarter of the year the level observed at the end of 2019, according to the report.

On the other hand, with growth close to the intermediate point of the intervals, this recovery would occur towards the second quarter of 2022. That is, if the GDP manages to grow 6%.

While with an expansion of 5%, the lower part of both intervals, the level observed at the end of 2019, that is, the previous level of the pandemic, would be reached in early 2023.

The organization headed by Alejandro Díaz de León clarified that challenges for recovery and an environment of high uncertainty still prevail, because the covid-19 pandemic has not yet dissipated.

Among the downside risks on the forecast horizon, the following stand out:

That there are delays in the production, distribution or application of vaccines or that there is a resurgence of the pandemic, both globally and nationally, which implies the adoption of new measures to contain it.

 Likewise, that possible bottlenecks in supply chains at a global level generate a shortage of inputs for some sectors in Mexico, particularly the automotive sector. Similarly, the pandemic leads to higher input and production costs in various sectors of the economy.

Third, that additional episodes of volatility are observed in international financial markets and that financing flows to emerging economies are affected.

“This could occur as a result of greater increases in long-term interest rates in the United States or new episodes of greater aversion to risk. The recent inclusion of China in the main global fixed income investment indices could represent a challenge for the external financing of the rest of the emerging economies, ”explained Banxico.

And finally, that the recovery of investment is lower than expected, remaining at low levels compared to what is required to support the recovery from the pandemic and the long-term growth of the country.

The upside risks that the central bank maintains for the growth of the economy highlight that the pandemic will dissipate more quickly, particularly due to an effective vaccination campaign, which would support confidence in the economy and expectations of a vigorous recovery.

Also that the stimuli that have been granted at the international and national level contribute to restoring the confidence of consumers and investors, and, in general, to supporting the recovery of the global economy and trade and to counteracting the aftermath of the pandemic.

Within the framework of the T-MEC, the higher external demand expected in view of the stimuli implemented in the United States will induce an increase in investment. And finally, that global financial conditions are maintained conducive to an accelerated economic recovery.

Inflation at 4.8%, far from the 3% target

On the inflation side, Banxico raised its forecast for 2021 to 4.8% from the 3.6% forecast in the previous report.

Among the risks to prices, the Bank of Mexico pointed to higher inflation at the international level that could imply pressure on inflation in our country.

“This could originate, on the one hand, from greater cost pressures related to increases in the prices of raw materials, including energy, inputs in general or transportation costs, as well as logistical problems in global production chains. On the other hand, this higher inflation could also result from a more vigorous global reactivation, partly due to the implemented stimuli ”.

On the other hand, there could be cost pressures due to the implementation of additional sanitary measures in the country, due to disruptions in the distribution chains, or due to salary increases or in contracting conditions that are transferred to consumer prices, despite slack in the economy.

There would also be pressures on core inflation derived from a recomposition of spending.

Lastly, episodes of exchange rate depreciation, possibly due to volatility events in international financial markets and the fact that the drought faced by various regions of the country is pushing up the prices of some agricultural products.

Source: proceso.com.mx

Mexico Daily Post