Mexico could return to pre-pandemic economic activity in 2022

MEXICO CITY: Mexico's battered economy may not recover to levels seen before the coronavirus crisis until 2022 as it is poised to suffer the biggest quarterly contraction on record, a member of the Mexican central bank's board said on Wednesday.

Echoing predictions from independent economists, Gerardo Esquivel, one of the Bank of Mexico's five board members, said the country's gross domestic product could contract between 8.5% and 10.5% this year.

Economic activity likely fell up to 20% in the second quarter when compared with a year earlier, he said, adding that spending on tourism, transportation, restaurants and fast food have remained far below expected levels even through end-July.

Esquivel and Jonathan Heath, the two board members appointed since President Andres Manuel Lopez Obrador took office in December 2018, have at times pushed for more aggressive rate reductions than the others.

The government has been criticized for not having pursued a more comprehensive fiscal response and for not taking on debt to address the crisis.

But Esquivel said in a country like Mexico, which faces a complicated scenario of public finances and risks losing its coveted investment grade rating, a significant increase in debt could be excessively costly.

Still, he warned against cutting public spending, which would be counterproductive and make an economic recovery more difficult.

Lopez Obrador has focused his administration on reducing poverty, eradicating corruption and stemming a tide of violence, but the economic crisis unleashed by the pandemic is complicating his efforts.

The pandemic could push some 9 million Mexicans into poverty and another 9 million into extreme poverty, CONEVAL, the autonomous public agency that measures poverty, has estimated.

"In the long run, this will be perhaps the most lasting and painful impact of this crisis and the one which requires more immediate attention," said Esquivel.