Next Friday, July 30, INEGI will release the GDP growth rate for the second quarter of the year (“timely estimate”). With this data, we will already have the “full picture” of the behavior of the most relevant macroeconomic indicators in the first half of the year. It should be noted that the level of economic activity in the second quarter of this year is very likely to have grown by about 19.0 percent compared to the second quarter of last year. In this sense, it was evident in the second quarter of 2020 that our country – and much of the world – experienced the greatest economic impact of implementing the movement restrictions and social distancing policies that caused the COVID-19 pandemic. Thus, the basis of comparison for the year/year rate is too low and therefore the rate will be very high. Fortunately, the reopening is more dynamic than most analysts thought at the end of last year or the beginning of this year, and the effects of unprecedented monetary and fiscal stimulus, especially from the United States, have made the Mexican economy grow more than expected this year.
In the first quarter, our country’s GDP grew by 0.8 percent compared to the fourth quarter of 2020 (seasonally adjusted). In my opinion, the growth rate wasn’t bad considering the high number of red-lighted states – especially in February – as well as the blackouts and shortages of natural gas supplies that occurred in the quarter. It should be noted that this 0.8 percent rate is the rate to pay attention to if we want to monitor the growth of the economy on a quarterly basis. Thus, an annual growth rate close to 19.0% in the second quarter would represent a quarterly growth of about 1.1% in the second quarter (comparable to 0.8% in the first quarter of ’21). In other words, it is very likely that the economy accelerated in the second quarter of ’21 compared to the first quarter of ’21.
On the aggregate supply side, that’s how we will see this post of GDP – which consists of agricultural and industrial production and the provision of services – it is very possible to see very significant growth of industrial production, parallel to the impetus that gave US growth to manufacturing export. Likewise, it is very likely that activity in the service sector has also improved, given the greater openness of the economy in the second quarter of this year.
Now, along with aggregate demand – the figure available as of September 20 – we have noted that more favorable indicators such as the trade balance and monthly indicators of both private consumption and gross fixed investment, a sector that has continued to recover, even at levels higher than those recorded before the pandemic. Similarly, although to a lesser degree, private consumption experienced a significant recovery, so that in April it was already only 4.3 percentage points lower than the last peak in July 2019. Despite the above, the most lagging indicator is investment. In fact, in April it was still 13 percentage points lower than the most recent peak, in February 2019. The worst thing is that investment was at the levels of the beginning of 2011.
We know that it is investment that not only allows for sustainable growth, but also that which generates the greatest potential for growth and job creation. This is why it is so concerning that he is recovering so slowly. It is very important that the government’s narrative about entrepreneurs changes and that messages of legal certainty are delivered, especially in the sense that the rules of the game will not change along the way. Despite this, our country is heading to grow by about 6.0 percent this year. Although it is a good growth rate, unfortunately it has been uneven by economic sector, by region and country, as well as between different socio-economic classes. Similarly, 6.0 percent is not enough for the economic recovery from the sharp 8.5 percent drop in GDP last year and less if we add the -0.3 percent in which the economy fell in 2019. In the recessions of 1994-1995 and of 2008-2009, GDP recovered in the year after declining at a rate similar to that of GDP. This time it means we have to grow at a rate of at least 8.5 percent. Certainly in other recessions there hasn’t been a pandemic we haven’t fully recovered from yet, but there has been a welcome attitude for domestic and foreign private investment. The key is to reinvigorate investment and it is not necessary to expand public spending to achieve this. A mere modification of the discourse in relation to the private sector accompanied by a commitment to legal certainty.
The author is Deputy Director General for Economic Analysis, Investor Relations and Sustainability at Grupo Financiero Banorte, Chairman of the National Commission for Economic Studies at IMEF and member of the Dating Commission for Mexican Economics Courses. The opinions expressed in this column are subjective.