Introduction
When the government publicly requests banks to lower their credit interest rates or negotiates maximum prices for gasoline and tortillas, it signals that the economy is in distress. The pricing dynamics in an open economy depend on supply and demand, influenced by productivity, availability of goods, logistics, employment levels, wages, and credit accessibility. These factors are not subject to the whims of a leader or the benevolence of small or large business owners. To effectively assist our specific government, especially our president, it’s crucial that the diagnosis is based on accurate data and concrete facts.
Economic Stagnation
Mexico’s economy has been stagnant for six years, with consistent price increases, particularly in essential goods and services. This situation has been referred to as stagflation, a complex issue to reverse. Here are the arguments explaining our economic standstill:
- GDP, Investment, and Consumption: Both the GDP evolution, investment, and consumption have been declining since last year. The growth projection for 2025 is between 0.0% and -0.5%, indicating a challenging economic outlook.
- Informal Economy Growth:
- The informal economy is expanding, paralleled by a decline in productivity.
- Job quality is deteriorating, and labor costs are becoming increasingly unsustainable for businesses.
- Global Competition:
Despite the protective policies of the United States, Mexican companies and workers continue to compete with the global market.
Labor Market Deterioration
The labor market reflects the structural degradation of the economy, with increasing informality, diminishing competitiveness, and rising labor costs for businesses. Additionally, the general price level has risen, affecting essential goods like chicken, eggs, tortillas, avocados, limes, and rent/transportation. Furthermore, there’s a noticeable decrease in the purchase of imported goods, indicating that Mexicans are losing their capacity to consume products from other countries, including essential items like computers, machinery, and equipment needed for job creation.
The government lacks resources to stimulate growth, despite having over 9 million pesos for spending. Moreover, there’s a lack of legal frameworks to foster small and medium-sized enterprises’ growth.
Key Questions and Answers
- What does it mean when the government asks banks to lower credit interest rates? It indicates that the economy is struggling, as pricing dynamics depend on supply and demand influenced by various factors.
- Why is the informal economy growing? It’s due to declining productivity and job quality, along with rising labor costs for businesses.
- How do global competition and protective policies affect Mexico’s economy? Despite protective policies, Mexican companies and workers still compete globally. These policies aim to shield them from external pressures but don’t guarantee automatic economic growth.
