'Stagflation', the evil afflicting the Mexican economy

Mexico City (Operation). The Mexican economy is not only stagnant, it is contracting, because it has not recovered – and will not recover this year and maybe not next year – GDP of 2018.

This is determined by data and forecasts from the Economic Commission for Latin America and the Caribbean (ECLAC), according to which in the first four years of the government of President Andres Manuel Lopez Obrador (2019-2022) Mexico’s GDP will have accumulated a decrease of -1.9% .

Inflation, according to the International Monetary Fund, will reach 6.8%. By more than one point above the Ministry of Finance’s forecast, it will be the highest point in the last 22 years.

For Emmanuel Salas, Professor of Economics at UNAM University, when an unusual increase in consumer prices and low, null or negative economic growth converge in a country, it is in a state of “stagflation”. And that, he says, “is the case for Mexico.”

Salas explains that the term “stagflation” is not a technical term but a political one because it did not come from the academy. It was first used in 1965 in the UK House of Commons by the then Chancellor of the Exchequer, Ian MacLeod, who compiled a complex situation in which economic stagnation and high inflation coexist.

But in any case, the economics doctor tells Proceso, it’s a concept that serves to define what’s happening in Mexico and in other countries.

New solid data

Just on April 27, the Economic Commission for Latin America and the Caribbean updated its forecast for economic growth in the region for this year and Mexico, among the four Latin American countries that will have the worst performance, at 1.7% – more than one point lower than last January’s forecast – along with Along with Chile (1.5%), Paraguay (0.7%) and Brazil (0.4%). According to new data from the agency, this year Mexico will not be able to recover the GDP it had in 2018, the last year of the government of Enrique Peña Nieto.

Salas notes that this is not only due to the impact of the COVID-19 pandemic, but the result of “a series of domestic policies that discourage, rather discourage, growth.”

An example that Mexico’s economic downturn in the past four years largely responds to internal factors is that in 2021 most Latin American countries managed to recover the GDP they had in 2019, the year before the most important phase of the epidemic.

Eleven Latin American countries have done this, including Chile, Peru, Colombia, Brazil and Argentina. They all managed to grow in 2021 at a rate higher than the recession they experienced in 2020, while the opposite happened in Mexico: growth in 2020 was 3.4 points lower than the decline in the previous year.

According to Salas, a researcher at UNAM’s Center for Economic Modeling and Forecasting, Mexico likely won’t recover its pre-pandemic GDP until 2024, which is “very dangerous because we would have lost a six-year period on economic issues.”

According to data from the Economic Commission for Latin America and the Caribbean, Mexican GDP contracted by -0.2% in 2019, by -8.2% in 2020 – the most severe year of the epidemic – while in 2021 it grew by 4.8% and will decline this year by 1.7%.

This means that in these four years it will accumulate negative growth of -1.9% and that it will be necessary to wait until 2023 or 2024 for the economy to recover its levels before the Covid-19 crisis and the marginal fall of 2019. For this it will have to maintain the latest growth forecasts set by the Economic Commission for Latin America and the Caribbean (1.7%) and growth of at least 1.9% in 2023.

Salas, professor of the Specialization Program in Applied Econometrics at Onam University’s School of Economics, stresses that the Mexico scenario is “very similar” to the 1980s scenario, particularly the six-year scenario for Miguel de la State. Madrid, when they presented high inflation rates (78% on average annually) and a steady decline in GDP.

But according to the ECLAC database, not even the first four years of de la Madrid’s rule (1983-1986) were as bad at economic matters as the current six-year period.

In that period (1983-1986), which coincided with the debt crisis and the plans of the first neoliberal shock, the cumulative decline in GDP was -0.9%, one point less than the contraction in this government.

“We are heading into another lost decade and this is not only due to external factors, such as the pandemic, but also due to internal economic policy that does not promote growth, because it does not encourage public and private investment to get it moving,” Salas says.

According to data from the National Institute of Statistics and Geography, public and private investment as a percentage of GDP closed 2021 at 20%, 1.6 percentage points lower than in 2018.

Public investment, which Europe and the United States have historically used to weather recessions and which has been a key tool of various left-wing governments, ended last year at 3.3% of GDP, half the percentage of the previous decade.

During the 2008 global financial crisis, public investment amounted to 6.8% of GDP, while in 2020, the most severe year of the pandemic, it was only 3%. This is despite megaprojects, such as the Maya Train, Felipe Angeles International Airport, or the Dos Bocas Refinery, which have been implemented “at the cost of sacrificing other items of public spending,” says Salas.

The economist explains that countries that regained their GDP in the previous year before the pandemic have funneled large amounts of public investment into the economy to boost recovery, which Mexico has not done.

Regarding the high rates of inflation, Sallas points out that it is mainly due to external factors, such as the disruption of the supply chain due to the epidemic and the increase in demand due to the massive injection of money into the economies of the United States and Europe, and in the face of this “there is very little that can be done internally.”

He notes that the government’s planned anti-inflation programs “are like aspirin for cancer and won’t have much of an impact on prices, let alone in the medium and long term.”

According to Salas, what is certain in economic matters is that the results in the behavior of the GDP that the Lopez Obrador government has produced so far are “the worst in the country’s modern history”, and it would be very difficult to reverse it. In the future. The remainder of the six-year period.

The text was published in issue 2374 of the weekly to treatwhose A digital copy can be purchased here.