Economy 4.0 | Mexico facing a global recession?

Economic analyst

The central banks and governments of the world are immersed in a tough battle to regain control over the direction of the economy and their public finances, something that was taken from them by the inflationary spiral that began in May 2020 and that is still causing havoc in most of the nations, except some Asian countries like China.

To regain control, central banks are willing to “cool down” world GDP growth, job creation and productive investment flows.

With this, they seek to correct the error they made between 2020 and 2021, when, in order to mitigate the recessive impact of the economic confinement caused by Covid-19, they chose to relax their monetary policy.

Such is the view of former Bank of England Governor Mervin King when he asserts that the injection of liquidity by Western central banks had a consequence that was “foreseeable”: a significant increase in money in circulation that was spent on few goods, a fact that caused the inflationary spiral that is being experienced and that is the preamble to a potential economic recession.

Janet Yellen, Secretary of the Treasury in the United States, and Paul Krugman, Nobel Prize in Economics, also believe that a mistake was made last year when it was thought that inflationary pressure would be temporary, an inadequate perception that in Mexico lasted until the first semester. of 2022.

The consequence was the inevitable tightening of monetary policy, a factor that will last for at least two more years and that will have adverse consequences on the evolution of world GDP. Ethan Harris, head of global economic research at Bank of America is blunt: “we are on the brink of a global recession.”

The economic information available up to the month of November shows the trend that the GDP will follow during the following six months.

The Weekly Economic Index of the United States, published by the Federal Reserve until last December 15, has an estimated increase in its GDP of only 0.64% for the fourth quarter of 2022.

The foregoing is consistent with the loss of strength exhibited by both construction spending and manufacturing (both durable and non-durable). The weakening of the US manufacturing sector takes its toll on other economies: orders from China have fallen 40%, a fact that shows the relentless collapse in demand and a situation that will reach Mexico during the first quarter of 2023.

With this, the United States joins the weakening of the global manufacturing sector reported by Standard & Poor’s in November, when 85% of the products analyzed exhibited a contraction in terms of new orders placed worldwide.

With the rise in interest rates it will be difficult to think of an economic recovery in the short term: the labor market will be compromised in the coming months and with it consumption. The economic winter is coming.

What will Mexico do in this context? The reactivation of its domestic market through an industrial policy that takes advantage of advantages such as “nearshoring” will be key to face the new wave of global recession, otherwise the Mexican GDP will grow marginally in 2023: perhaps one percent, a performance that is not It will be enough to overcome informality and the precariousness of the labor market.

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Economy 4.0 | Mexico facing a global recession?