Challenges of the Mexican economy and capital flight

The challenges of the Mexican economy and capital flight in 2021 are the great unknown of the United States’ neighbor to the south.

Challenges of the Mexican economy and capital flight

The challenges of the Mexican economy and capital flight in 2021 are the great unknown for President Andres Manuel Lopez Obrador, who has given a turn to left-wing politics. The economy will drop 9.2% in 2020 and flight of capital and businessmen toward Panama, for fear of a more radical leftist policy.

The coronavirus pandemic struck the Mexican economy very strongly. According to the Organization for Economic Cooperation and Development (OECD), the fall of the GDP this year in that country will be 9.2%. The analysts feel that Mexico could reach economic levels similar to those of 2018, only in 2022 or 2023.

The 5 challenges of the Mexican economy and capital flight

What will happen in the Mexican economy in 2021? To answer this question, we need to analyze the five principal challenges that the Mexican economy will face during the upcoming year. Experts hope that the growth of  the GDP will settle at 3.5% in the upcoming months. However, this amount will depend on how the different factors that can block economic growth will be handled. Among them are the problems with public insecurity, the weakness of the internal market and tax policies.

Vaccination against COVID-19

The first big challenge will be vaccinating the population against COVID-19. The virus has extended over the entire country. More than 1.3 million Mexicans have been infected since the pandemic. The government of Andres Manuel Lopez Obrador has been reluctant to apply total shutdowns; however, in any case, the economy has suffered. To relaunch the country, guaranteeing a vaccination procedure as quickly and efficiently as possible is necessary. Nonetheless, experts feel that the greatest number of Mexicans will have been vaccinated only by the third or fourth quarter of 2021.

Employment Recovery

Several studies refer to a total number of more than four million jobs lost during the pandemic. The area most affected was that of professional services, especially those dedicated to tourism and hospitality. Therefore, creating more jobs will be one of the most difficult challenges facing the government in 2021.

Inflation is the #1 challenge of the Mexican economy and capital flight

The Consumer Price Index has gone down in the last months of 2020, so Mexico will close the year with an annual inflation rate of 3.64%. Meanwhile, for 2021, said inflation must settle at 3.6%. The combination of Lopez Obrador’s left-wing politics and inflation will be the main contributors of a capital flight.

Reaching the T-MEC

The new commercial agreement between Canada, the United States and Mexico (T-MEC) will come into force. To reach this scenario, it’s essential that the government of Lopez Obrador offer more certainty to potential investors. Plus, it will have to offer better incentives to local businessmen who seek new opportunities in Panama.

Relations with Joe Biden

During the Trump Administration, relations between the two countries were less conflicted than expected. Lopez Obrador delayed recognizing Biden’s victory, which wasn’t a good sign. Analysts feel that changes in economic policies that Biden follows will affect Mexico. At the same time, if the American economy doesn’t grow as expected, then it will have a direct bearing on the Mexican economy, especially on the subject of exportations.   

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