Mexico City, 1 February 2022 (TDI): Mexico’s economy entered a technical recession when it contracted for a second straight quartering the last three months. This happened despite an annual growth of 5% in 2021.

Increasing COVID-19 infections, rise in the prices of raw materials, higher costs for ground transportation, and the continued strain on the supply chains have been what caused this to happen. Mexico’s GDP shrank by 0.1% in the last quarter of 2021, according to INEGI national statistics.

“The weakness of domestic production capacity has to do more with the structural damage caused by the pandemic and the lack of mitigation policies to help restore the level of productive investment.” – Alfredo Coutiño, Latin America director at Moody’s Analytics.

The central bank expects the economy to grow at 2.7% in 2022. Inflation hit a staggering 7.37% in 2021, which is the highest it has been since 2001. The central bank, in a bid to counteract these developments, raised its interest rate for the fifth consecutive time. In December 2021, the interest rate stood at 5.5%

INEGI added that industrial activity, grew by 6.8% in 2021, services rose by 4.2% while primary activities (which include fishing and farming) grew by just 2.7%.

Renzo Merino, Moody’s Investors Service analyst expects economic growth in 2022 to be lower than what the government is aiming for. He also added that this may continue for the next several years which could generate pressure on fiscal amounts.

So far, President Andres Manuel Lopez COVID recovery programs have been focused on the people. Most of the recovery effort has gone towards social programs and investment in public works.

What is a Technical Recession?

A technical Recession occurs when there have been two consecutive quarters of negative growth in the real GDP. Technical recession covers a wide range of declines in economic activity, compared to the conventional definition of recession which just snapshots trends. Technical Recession covers employment, households, corporate income, etc.