The ITAM 2021 Economic Outlook Seminar focused on how to accelerate the recovery of the economy after the crisis derived from the pandemic. Those who participated in the seminar include Finance Minister Arturo Herrero, Banco de México Governor Alejandro Díaz de León, among other prominent speakers.

The Post Covid-19 Economic Environment

The 2021 edition of this seminar, which marks the beginning of the economic foresight exercises of the year in Mexico, was in itself a sample of the challenges and opportunities unleashed by the present pandemic. This year, more than 1,100 people attended the online seminar, which has been held without interruption for the past 30 years.

Referring to the economic environment, ITAM president Dr. Arturo Fernández emphasized that the pandemic has not destroyed the capital stock of the economy nor the labor force, but two important damaged areas need to be addressed: the consumption of working capital of many companies, especially small and medium-sized ones, and unemployment and the loss of income that affects many families, causing them to default on their loans to creditors and suppliers. Dr. Fernández presented seven ingredients for a rapid recovery:

Recognize and trust the country
A good vaccination strategy
Restitution of working capital
A better environment for investment
Preservation of healthy public finances
Monetary policy
The drive for growth to solve social problems, such as poverty, marginalization and lack of opportunities.

Regarding the recent events in the United States, he said: “With this experience, it is clear that solid institutions are not enough. Equally important are the integrity, civic responsibility and courage of many people in public offices who, above personal, ideological or partisan interests, raise their voices to say, enough. The institutions are not executing machines, they are principles and rules applied by human beings.”

The Macro: Recovering Growth with a New Model

In his intervention, Alejandro Díaz de León estimated that the growth in Mexico will depend on the agility of the vaccination plan that is applied in the country. The main scenario for Banxico foresees a growth of 3.3%. He also stated that if the normalization of the economic sectors is speeded up, beginning with the Covid-19 vaccination, the Mexican GDP may reach a rebound of up to 5.6% this year. The governor of Banco de México stressed that investment is one of Mexico’s greatest challenges. He said that the performance of this indicator has clearly had a negative impact since before the economic shock induced by the pandemic. He sustained that the direction of monetary policy will depend on the evolution of inflation.

On the other hand, Finance Minister Arturo Herrera provided an explanation of why Mexico and other middle-income countries did not follow the same countercyclical policies that more developed countries applied in the early stages of the pandemic. He pointed out that the agency he is in charge of foresees a growth of 4.6% in 2021. He said that if the application and deployment of the vaccines overtake the rebound of the pandemic, the expectation could improve. He added that when between 56% and 70% of the population is vaccinated, it will be possible to begin to define the economic recovery strategy. He also said he was sure that a very high percentage of the population will be vaccinated by May and June.

José Ángel Gurría, general secretary of the OECD, pointed out that Covid-19 has been the first truly global crisis and it has caused catastrophic results. He pointed out that countries have the opportunity to rebuild – not by recreating the previous model – but by developing a new model that strengthens health care systems, social protection programs and the educational system. To do this, he emphasized the importance of rebuilding, through the advancement of structural reforms and the transformation of fiscal policy. He said that in Mexico taxation is barely 16% of GDP, which is far below the 34% average of the OECD, so that between one percentage and another there is a margin of action that should be taken advantage of.

Alejandro Werner, director of the IMF’s Western Hemisphere Department, said that the challenge of recovery in Mexico is enormous. He stressed that it was necessary to promote economic growth through a strategy based on a new social contract that guarantees long-term sustainability. He estimated that Mexico will not recover the levels of GDP per capita prevailing before the pandemic until 2026 or 2027. He said that the most recent expectation of the IMF for Mexico’s GDP in 2021 is 3.5%, a forecast that he made in December and that could be revised to rise considering a positive impact of the global fiscal stimuli and particularly of the United States on foreign activity.

The Micro: The Influence of Different Sectors
The seminar included the presentation of two panels: one on public finances and another on the challenges of Mexico in 2021.

Ernesto Acevedo Fernández, undersecretary of Industry, Trade and Competitiveness, estimated a GDP growth for 2021 of 6%, based on the recovery of the automotive and space industry, and of the global chains of value, as well as the opportunities of Industry 4.0 and the T–MEC.

Edna Jaime, CEO of México Evalúa, pointed out that the project presented by the government and approved by the legislative branch does not reflect the crisis in which the country is immersed. She expressed her concern about excessive optimism: low taxation, excess public spending on some social projects, but significant underspending in the health sector.

For his part, Mauro Leos-López, associate managing director of the Sovereign Risk Group of Moody’s Investors Service, ruled out a downgrade in the sovereign credit rating. He indicated that Mexico has relative fiscal stability in relation to GDP, but that its fiscal strength is less. Nevertheless, he anticipated that it will retain its investment grade. He said that Pemex is a black hole for public finances because it annually absorbs around 15 billion dollars of the financial resources that reach the federal government. He affirmed that the state company will be a permanent burden for the rest of the administration and its finances will put pressure on public finances.

Jorge Suárez-Velez, founding partner of SP Family Office LLC, said that economic recovery will be in the form of a K, that is, differentiated by sectors, according to the reopening that each one has.

Valeria Moy, general director of the Mexican Institute for Competitiveness, pointed out that the economic crisis should not be seen from a post-Covid lens, but rather from the scenario before the pandemic, in 2019, when declining rates were already observed in different areas. She mentioned the fall of investment since 2019 and noted that the government may be excessively optimistic in presenting its estimates for 2021.

Luis de la Calle, CEO of De la Calle, Madrazo y Mancera S.C., said that the strength of the peso against the dollar is due to the change in the U.S. monetary policy. He affirmed that if Mexico took advantage of the reconfiguration of the world economy, the exchange rate could be 17 pesos to the dollar.

De la Calle also commented that, unlike Donald Trump, who was not interested in defending U.S. interests abroad, Joe Biden is interested in respecting international commitments and will emphasize the conflict resolution system provided for in the T-MEC to settle differences to act as a counterweight before Mexico. He anticipated tension between Mexico and the United States on energy, environment, labor and investment issues. The seminar concluded with an analysis of the post-Covid-19 global geopolitics by Alan Stoga, director of the Tällberg Foundation.

The seminar is organized annually by ITAM and the ITAM Alumni Association – which is chaired this year by Xiuh Tenorio and whose vice president is Anakarina Piña – and coordinated by Benito Solís and Alejandra Peralta, VP for Advancement and Institutional Communication.

If you missed an event, you can find some of the speakers’ presentations here.