After the sharp decline in 2020, GDP is projected to grow at 3.6% in 2021 and 3.4% in 2022. Economic growth will be led by exports, particularly from manufacturing firms integrated into global value chains. Private consumption will strengthen mildly, aided by robust remittances, a slowly improving labour market and a boost in confidence as an effective vaccine is rolled out. Ample spare capacity will keep inflation contained. The pandemic is causing significant increases in poverty, inequalities and gender gaps.
Macroeconomic policies need to foster the recovery. Despite limited fiscal space, the severity of the recession warrants stepping up fiscal policy support. This could include income and training support for the hardest-hit workers, both in the informal and formal sectors, while temporary payroll tax reductions could help more SMEs and support the creation of formal jobs. Bolstering private investment will be key for a stronger recovery, which calls for reducing regulatory burdens and regulatory uncertainty.
In the recent years, Mexico has adopted a number of structural reforms to boost productivity growth. Full and efficient implementation and follow-up will be crucial to bear the full benefits of these past reforms.
Moderate growth is underpinned by a strong macroeconomic framework. Commitment to fiscal targets, sound debt management, a flexible exchange rate and an appropriate monetary policy stance have supported moderate growth in spite of several headwinds in recent years.