The federal government of Mexico, as well as local authorities, face what can be described as one of the most serious challenges to the Mexican economy. The list of problems is quite impressive. Firstly, its economy is dealing with a neighbor on near-total lockdown.
Moreover, the peso fell to the lowest point in five years, as of Monday a person had to pay more than 25 pesos for one U.S. dollar. Also, on Monday its stock market fell 43.6% from its peak on January 17.
Last week, Mexico’s central bank reduced its interest rate to 6.5%. However, this measure may prove insufficient as no one is rushing into buy peso-denominated debt. It makes sense as at a time when wealthy countries have zero interest rates, it will be hard to find people willing to buy such debt.
It is worth mentioning that the Mexican economy is under pressure due to the coronavirus pandemic. Moreover, according to Barclays, the local economy is expected to shrink in 2020.
Unfortunately, one of the major problems if not the main one is the state U.S. economy. The longer important economic states in the U.S. remain in quarantine, the longer it will take for Mexico to stabilize its economy.
Mexican economy and risk factors
Resorts located in Mexico are popular among Americans as well as for people from other countries. The travel and tourism industry is an integral part of the local economy. However, due to coronavirus, many people had to change their plans.
Additionally, coronavirus outbreak coincided with spring break Usually, thousands of students from the U.S. are visiting Mexican resorts. However, this is not the case in 2020.
For example, hotel occupancy in the state of Quintana Roo is now below 60%. Popular beach gateways such as Cancun and Playa Del Carmen are located in this state.
The consequences for Mexico without a doubt will be quite serious, as at least 8% of the local economy is in trouble as Americans stay at home.
It is not possible to cross the border with the U.S. There are certain exceptions when it comes to essential traffic like goods and services. Another exception is American citizens who want to return home.
Moreover, students who stayed at home are only part of a bigger problem. There is a risk that the number of tourists who will spend time at home instead of Mexico will increase in the following days. Non-spring breakers also cancel trips to Mexico.
Coronavirus outbreak and its impact on the Mexican economy is already visible, and it won’t be easy to protect the local economy.