Mexico's Coronavirus Response Could Plunge Country Into Deeper Recession, Experts Warn

If Mexico does not do more to ramp up its response to the coronavirus outbreak, the country's economy could plummet into a deeper recession than previously predicted, experts have warned.

While Swiss investment bank UBS has estimated that Mexico's economy could shrink by 7.6 percent in 2020, more than doubling a previous forecast, experts told Newsweek that number could grow if the Mexican government does not do more to address the economic impact of the pandemic.

"There are a lot of different estimates out there about just how serious the recession could be in Mexico," Christopher Wilson, the deputy director of the Wilson Center's Mexico Institute, told Newsweek.

"Mexico has clearly entered a recession at this point and it will be a serious one," he said. "But there are questions about just how far the Mexican economy will fall."

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Most of the current estimates, Wilson said, largely focus on the impact that the coronavirus pandemic will have on the economy alone, "with the number of people having to leave work, leave their jobs, the disruption to supply chains...All of the things that are happening all over the world as a result of coronavirus."

"What is left to be seen is just how much the Mexican government will act to mitigate some of that damage or really exacerbate it by not responding—and I think there's a lot of concern right now about the latter of these two," Wilson said.

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Indeed, Mexico's President Andrés Manuel López Obrador, who is known around the world as AMLO, has faced growing criticism over his government's response to the global crisis.

The Mexican leader has vowed that unlike past "neoliberal" governments, his administration would not be bailing out banks, large businesses or cutting taxes to help them get through the pandemic.

"The package that the Mexican government has announced in response to the coronavirus [outbreak] is very small," Wilson said. "Much smaller than other countries in Latin America are doing and much smaller than what the United States is doing, obviously."

While AMLO has refused to introduce a stimulus package comparable to other Latin American countries, however, he has also resisted pulling money away from signature infrastructure projects, including the development of an $8 billion oil refinery and a new airport north of Mexico City.

Instead, Wilson said, "his answer to this dilemma is that he just won't find the money and he won't save businesses."

Manuel Molano, the director of the Mexican Institute for Competitiveness agreed, telling Newsweek that AMLO's approach appears to be "that we basically need to sit this one out. Let every business that needs to go bankrupt in the economy go bankrupt and that will help speed up the economy."

"Let's pray for that to happen," Molano said. "But, I don't think that's the correct policy option at this moment."

'It will be the poor who are hurt the most'

AMLO's approach, Wilson said, appears to be driven by a deep determination to avoid "replicating the mistakes of the past."

"AMLO looks at countercyclical policy as a neoliberal style of economic management and that's simply something he doesn't believe in," he said. "He sees what really has become a consensus among economists around the world as a way that you address a crisis...as the old system that he's seeking to bring down and change...a system that favors the rich and hurts the poor."

"Ironically," Wilson said, "it will be the poor who are hurt the most if the Mexican economy crashes further than it has to as a result of his policies."

AMLO
Andres Manuel Lopez Obrador President of Mexico, speaks during his daily informative session presenting 'The Program Support for Food Sovereignty' at the National Palace on March 25, 2020 in Mexico City, Mexico. AMLO, as the president is commonly referred to, has faced criticism over his handling of the coronavirus crisis. Pedro Gonzalez Castillo/Getty

More families, he said, will face the "great risk of not being able to meet the day-to-day needs of their families and that could be enough to push them into poverty and to have to make a really tough decision about spending...Do they pay rent or do they buy food? More families will be facing these types of decisions."

Molano agreed, asserting that while Mexico as a whole "will be very badly hit, that would also mean that the poorest people of the economy" would particularly suffer.

Already, he said, many feel forced to "try to live their lives as before the pandemic," in a bid to soften the blow of the crisis.

Under the current approach, Wilson said, "Mexico won't disappear; it will go on. It' s just that the recession will be deeper than it otherwise would have been."

"It's not Mexico's fault that coronavirus is hitting the country and the world," he said. However, Wilson asserted, "You have two options: you either respond to it and soften the blow or you don't and you fall deeper. More businesses will shut down, more people will lose their jobs and more people will enter poverty."

Last month, as the global impact of the coronavirus outbreak became increasingly clear, AMLO faced criticism for his slowness to respond to the threat.

Towards the end of the month, the Mexican president had urged residents to try to "continue normal life" as much as possible. "Don't stop going out," he said. "If you can afford it, keep taking your family out to eat. It strengthens the popular economy."

In the weeks since, Mexico has ramped up its response to the outbreak, bringing its efforts to curb the spread of the virus more in line with other countries around the world. Whether the government's economic response will follow suit remains to be seen.

Mexico's Coronavirus Response Could Plunge Country Into Deeper Recession, Experts Warn | World