Mexico’s economy is visibly stagnant and we have had a problem of lack of growth for at least two decades. That would have to be the discussion now beyond putting the recession label on it, said the deputy governor of the Bank of Mexico, Jonathan Heath.
The last time the economy posted an expansion of more than 5% for a couple of years was in the late 1990s. Since then, it hasn’t come close to, let alone sustained, a performance. Between 1996 and 1997, the Mexican GDP achieved an expansion of 6.7 and 6.8%, respectively, according to information from the World Bank.
Interviewed by El Economista, he said that elements are still lacking to fully identify whether the economy is in a slight recession or stagnant. He took, for example, the preliminary estimate of GDP to explain that the 0.1% drop in GDP in the last quarter of 2021 was guided since July by tertiary activities.
The contraction of activities linked to the subcontracting of services, which have registered falls of up to 30% since August, are partially impacted by the entry into force of the Labor Reform, he evidenced.
In an absolutely intuitive way, we can assume that without the Labor Reform, the fall that occurred in service activities linked to outsourcing would not have been completed.
He emphasized that “in no way can it be said that we have a generalized fall in all sectors, such as the one that would correspond to the classic definition of a recession, since not even within the tertiary sector is there a widespread fall among the 15 activities that comprise it. There is the case of commerce, which is also part of this segment and has maintained a positive performance”.
According to the deputy governor, a classic recession, as defined by the National Bureau of Economic Research, has to meet at least three criteria: duration, depth and dispersion. The Mexican economy seems to have complied with only one of them, which is duration.
He considered that, statistically speaking, it is very difficult to affirm that a negative rate of 0.1% is significantly different from zero. So the second criterion of a classic recession is not met, since we do not have a resounding fall, “or abysmal”, as it did occur in the second quarter of 2020, during the so-called “pandemic recession”.
Inflation with stagnant economy
Heath ruled out classifying as stagflation the period that is occurring in Mexico, where “inflation has become a serious problem”, after reaching levels of 7%, not seen in 20 years, in a context of stagnation.
When an economy does not grow or falls, the pressures on inflation tend to decrease. But if the economy stagnates or declines and inflation still occurs, we are facing a rather rare phenomenon, which cannot be classified as a crisis either.