Mexico's economic recovery will largely depend on demand for its export products, with key trading partners like the US likely to recover more swiftly thanks to broad fiscal measures in place, according to Mexican bank Banorte.
“We still expect that the economic recovery [in Mexico] will be driven by external demand … [which is] positioned for a more vigorous rebound, with expansionary economic policies - both monetary and fiscal - playing a key role,” wrote the bank’s economic analysis team in a research note.
The note by Mexico’s largest domestic lender factored in June consumption and gross fixed investment (GFI) data that was released Monday by the country’s statistics agency (Inegi).
The Mexican government’s fiscal response to the COVID-19 pandemic has been minuscule compared to that of developed economies, including its most important trading partner, the US, as shown in this graphic from a recent report compiled by research firm Signos Vitales.
The relatively scant support is widely believed to generate a deeper and longer economic downturn due to the pandemic in Mexico, though it should mean the country will be carrying a lighter debt burden than countries with strong support measures, and it should also be able to benefit from external demand, according to Banorte.
The latest trade balance data, said the bank’s economic team, corroborates a strong resumption of exports from Mexico, with the trade surplus widening to US$6.75bn in July from US$2bn in June.
With the July trade figures, released last week by Inegi, Mexico reclaimed the title of top trading partner for the US economy, with two-way trade totaling US$291bn in January-July.
Digging out
The Inegi data released Monday showed consumption and GFI begin to dig out from the lockdown measures with the resumption of many activities in June. Though private consumption was -18.3% year-on-year, this was a marked improvement from the -24.8% y-o-y comparison recorded in May.
The following graphic, provided by Banorte, integrates Inegi data with month-on-month performance for private consumption.