Demand for Mexico's export products will be key to an economic recovery and with a major trading partner like the U.S. this is achievable, according to a research note by Mexican Bank Banorte.
“We still expect that the economic recovery [in Mexico] will be driven by external demand … [which is] positioned for a more vigorous rebound, with expansionary economic policies - both monetary and fiscal - playing a key role,” the research note said.
The analysis team considered June consumption and gross fixed investment (GFI) data that was provided by the country's statistics agency (Inegi).
Amid the COVID-19 pandemic, the Mexican government's fiscal response has been small in comparison to developed economies including the United States Barnote said. It is believed that it will take Mexico longer to achieve economic recovery, according to the bank. It also means that Mexico should be carrying less debt than many other countries and should see a benefit for external demand, the analyst said..
Consumption and GFI began to find their way to the surface from the lockdown measures in June when activities could resume. Although the private consumption was down -18.3% year-on-year, there was still an improvement from the month of May that was at -24.8%.
“Considering that performance was similar to what we saw in supply-side indicators - for which we have more timely data - we believe the worst for these categories have already passed," the bank analysts wrote. "We still think that changes in consumption patterns will be clearly visible in the next few months, with people favoring the purchases of basic goods and services. As long as the pandemic and its effects - both direct and indirect - continue to weigh on the economy and its outlook, we continue to expect a significant drag in domestic demand."
Alerts Sign-up