Economics: Investment recovery remains very slow and uneven

MEXICO - Report 21 Jun 2021 by Mauricio Gonzalez and Francisco González

Reactivating investment is key to the recovery of the Mexican economy following the decline observed since the second half of 2018, and especially during the pandemic. The determining factors driving such a renewed growth in investment would be certainty, confidence, consumption reactivation, and profitability. However, despite a rebound of the U.S. economy, which positively affects Mexican exports, the recovery in the country’s economic growth is expected to be long and slow. As long as there is no clear and sustained expansion of investment, particularly private investment, economic growth will be limited.

Growth rates as reflected in Inegi’s Timely Index of Economic Activity, while high in relative terms, have yet to reach their pre-pandemic levels of 2019. For 2022 economic growth of 2.0%-2.5% is projected, which would return the economy to previous years’ weak long-term trend. However, the economy is not expected to reach pre-crisis revenue levels until the end of the current presidential administration, in 2024. According to Inegi’s Business Confidence Index at May 2021, the "right time to invest" component is at the lowest level compared to those related to the country’s and companies’ economic situation.

Yet the necessary conditions of certainty and confidence to fuel such needed investment are being undermined by President Andrés Manuel López Obrador. In a post-election meeting with the country’s top business leaders, the President announced a third package of infrastructure projects with private sector participation. However, no information or balance sheet has been presented concerning the first two packages.

At the same time, AMLO has reiterated his legal and regulatory proposals, which are strongly rejected by the business community, and heightened his criticisms of the corresponding government regulatory agencies. His stance, to which he is strongly committed, will undoubtedly hinder private investment in energy, which is precisely the sector with the greatest potential.

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