A new report from the Center for Economic and Policy Research (CEPR) looks at the performance of the Mexican economy over the past decade, including the 2008-2009 recession and recovery, and concludes that the country’s economic failure is a main reason for the likely loss of the ruling PAN party.
“Mexico’s economy has done terribly since 2000, and for the last three decades, by any comparison – compared to its past growth (e.g. 1960-1980), or even compared with the rest of Latin America, which has grown twice as fast in per capita GDP since 2000,” said Mark Weisbrot, lead author of the paper and CEPR Co-Director.
The paper notes that after Latin America’s record-breaking economic failure of 1980-2000, most of the region voted in left governments, whereas Mexico moved to the right. It looks at some of reasons for this difference.
“There is much evidence that Mexico’s media duopoly has a major influence on the electorate. This was true in the 2006 election, even though it was impossible to say who received the most votes in that election,” said Weisbrot.
Among the highlights of the report:
- Mexico’s economic growth since 2000 has not improved over that of the long-term failure of the previous two decades. Its average annual per capita growth of 0.9 percent for 2000-2011 is about the same as the 0.8 percent annual rate from 1980 to 2000, and a small fraction of the 3.7 percent rate of the pre-2000 era.
- Mexico’s economy since 2000 has also performed very badly as compared with the rest of Latin America. Its annual growth of GDP per person is less than half of the growth experienced by the rest of the region.
- Mexico suffered the worst output loss in Latin America during the 2008-2009 recession, with a loss of 9.4 percent of GDP.
- The recession wiped out almost all the gains in poverty reduction that had been made over the past decade.
- Unemployment has not recovered to its pre-recession level, but remains considerably higher at 5 percent, compared to 3.6 percent prior to the recession. However, these numbers are small in absolute terms, because the official unemployment rate does not capture the full extent of unemployment in Mexico. Movements in the official unemployment rate should be seen as an indicator of the proportionate deterioration (and recovery) of the labor market, and not as a measure of the actual level of unemployment.
- Underemployment more than doubled during the recession, from 6.3 to 13.2 percent. Nearly three years later, it is still at 8.3 percent.
- Real wages have lost ground, shrinking by 3.5 percent since 2006.
- Policy mistakes have contributed to the poor performance of the Mexican economy. The Mexican Central Bank’s monetary policy was too conservative, raising policy interest rates (to 8.25 percent) just before the recession. The Central Bank could have avoided some of the increases in unemployment and poverty by lowering interest rates much sooner and lowering them further.
- The Central Bank’s failure to more aggressively combat the downturn and ensure a stronger recovery, especially of employment, is partly attributable to its inflation-targeting regime, which targets an inflation rate of 3 percent.
- The fiscal stimulus, as with monetary policy, was not only too little, but too late. Mexico has a relatively low level of public debt, at about 32 percent of GDP, and especially foreign public debt – which is the more binding constraint – at about 10 percent of GDP. The government therefore had plenty of room to borrow as necessary in order to pursue the appropriate fiscal stimulus policies.