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How Covid-19 affect the economy of México

Actualizado: 21 ago 2020

Mexico is among the G-20 countries with the greatest potential impact on its economy due to closures and stoppages of activity as containment measures for COVID-19.

The Organization for Economic Cooperation and Development (OECD) estimated that the initial impact on Mexico from partial or total shutdowns in the various productive sectors is 30 percent of GDP at constant prices; the third highest after Japan and Greece which are 31 and 34 percent, respectively.

"Many countries where tourism is relatively important could be more severely affected by the brake and limitations on travel," the agency said in an initial analysis of the impact on economic activity by the measures to contain COVID-19 among the G20 countries.

It added that countries with relatively large agricultural and mining sectors, including oil production, may experience smaller initial effects from containment measures, although production will be affected later by lower global demand for commodities.

He explained that in all economies, most of the impact comes from the effect on production in retail and wholesale trade, professional services and real estate. But there are notable differences between countries in some sectors such as the closure of transport manufacturing in Japan or the decline in tourism and leisure activities in Italy.

"The effect of the impact of business closures could result in reductions of 15 percent or more in the level of production in advanced economies and major emerging market economies after full implementation of containment measures," he said, noting that Ireland is the country where the impact is lowest, at 15 percent, and the highest is 34 percent in Greece.

According to the OECD, in China, the maximum adverse impact on production has already passed, and some closure measures have now been alleviated.

The impact of the stoppages on industrial and service activity will substantially weaken the short-term growth prospects in the major economies.

The 'shock' will be equivalent to a decline in annual GDP growth of up to 2 percentage points for each month that strict containment measures continue, the agency estimated.

"The containment will directly affect sectors that account for up to one-third of GDP in the major economies. For each month of containment, there will be a 2 percentage point loss in annual GDP growth. The tourism sector alone is facing a decline of up to 70 percent in activity," Angel Gurría, the agency's secretary-general, said in his statement to the G20 summit by video conference on Thursday.

"This is inevitable, since we have to continue fighting the pandemic, but at the same time we have to focus our efforts in order to restore economic normality as quickly as possible," he said.

In its analysis, the OECD further stresses the need for stronger action to cushion the blow.

"With a more coordinated response from governments to launch a lifeline to people and the private sector, which will emerge much weaker once the health crisis has passed," he said.

In the report "Assessing the Initial Impact of COVID-19 Containment Measures on Economic Activity", prepared for the G20 special meeting and released Friday, the OECD warns of the initial direct impact of forced closures on economic activity that could mean a drop in the level of production by a quarter or a fifth in many economies, and consumer spending could fall by about a third.

"Changes of this magnitude would far exceed anything experienced during the global financial crisis in 2008-09. This overall estimate only covers the initial direct impact on the sectors involved and does not take into account any additional indirect impacts that may arise," the paper says.

The agency said the implications for annual GDP growth will depend on many factors, including the magnitude and duration of national closures or shutdowns, the extent to which demand for goods and services is reduced elsewhere in the economy, and the speed at which significant fiscal and monetary policy support takes effect.

According to the OECD, there are five fronts on which aid should flow: people and workers; businesses, particularly SMEs; the macroeconomy, with the mobilization of all three policy instruments (monetary, fiscal and structural); trade, with the removal of trade restrictions, particularly on imports of much-needed medical supplies; and support for developing and low-income countries, as called for by the International Monetary Fund (IMF) and the World Bank.

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