BRETT CARMEL AND ADAN SIERRA
The overall outlook for Mexico is positive, given its close links to the US economy, booming tourism sectors, and opportunities to become an alternative production hub to China.
What are some of the main economic impacts of COVID-19 in Mexico, and what will be the main long-term impacts?
BRETT CARMEL The current situation can be divided into two parts: things outside our control, such as COVID-19; and elements that are specific to the Mexican economy. Once the global economy picks up, exports will get a boost, which will affect Mexico because our economy is linked to the US economy. The US economy will perform better than expected, and the Mexican economy will recover quicker. That does not mean that there are no underlying issues, as economic recovery will be impacted by politics in Mexico, the lack of stimulus, and a weak peso. Ultimately, Mexico will come out of this crisis like a rocket. Apart from being located next to the US, Mexico has been identified as an alternative production hub to markets in Asia, especially China. A welcoming environment for FDI will ultimately benefit Mexico over the next two to five years in a way that will generate significant long-term growth and opportunities.
ADAN SIERRA Mexico was already in a recession before everything happened. The impact of COVID-19 is hurting oil, trade, remittances, and tourism the most. That will be extremely damaging in the short term. In addition, there is an administration that has been extremely conservative fiscally. This will definitely impact the progress of the country. Most economists expect Mexico to grow by 2-3% in 2021, so that translates into three to four years of recovering all this lost growth. In the long term, we are fairly positive and believe the current crisis will just be a little bump in our history.
What other sectors besides manufacturing will come back online the fastest?
BC Once the lockdown has been lifted or eased, the tourism sector will be one of the first to open. Things will calm down sooner than what most expect, and tourists will flock to Mexico because it has one of the most complete and attractive tourism locations. One of the areas that was picking up prior to the crisis is medical tourism. Once we have more data, people will recognize that the benefits of living and going about normal life are greater than the risks, and as a result, there will be a return to some semblance of normalcy. Unfortunately, the crisis has hurt some sectors more than the others. On the one hand, there are companies whose business has grown dramatically under the present circumstances, for example, suppliers and manufacturers of cleaning products and PPE. On the other hand, there are businesses and sectors that will take longer to recover, such as the automotive industry. There will likely be less M&A activity in the short term, as businesses work to consolidate their position and strengthen their balance sheet. The trend of low levels of M&A activity will continue until the end of 2020. However, in 2021, we will see a significant increase because of pent up demand and low interest rates. That said, it is not simply about low interest rates but also the availability of credit.
AS The manufacturing sector has the highest correlation with the US economy, so it will be the first one to recover. Within manufacturing, you have auto parts, electronics, components, and plastics, and these are sectors that will rebound quickly once the US economy reopens properly. M&A activity came to a halt and no state in Mexico was immune to this trend. Initially, no one was really interested in doing acquisitions but as things are starting to settle down, we are having more conversations, which is definitely positive.
BRETT CARMEL AND ADAN SIERRA
TABLE OF CONTENTS
Focus
Inclusive development
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