When the Mexican economy suffers, the Rio Grande Valley usually feels it too, as they are inextricably linked.
Antonio O. Garza, a Brownsville native, retired U.S. Ambassador to Mexico and attorney at Case & White in Mexico City, recently described Mexico’s overall economic/business pulse as “gloomy” and marked by uncertainty, compounded by concerns about the political direction of the López Obrador administration. , inflation and whatever the US Federal Reserve is about to do in response.
The outlook for the Mexican economy is below previous forecasts, he said. In 2021, Mexico’s gross domestic product, or total economic output, contracted in the third and fourth quarters and the country ended the year with an annual inflation rate of 7.3%, the highest in 20 years old, Garza said. In late January, the International Monetary Fund “lowered its Mexican GDP growth projections for 2022 from 1.2% to 2.8%,” he said.
The omicron wave further undermined Mexico’s economy, damaging its tourism industry and exposing the fragility of its healthcare system. Earlier this month, the Centers for Disease Control and Prevention added Mexico to the list of countries U.S. travelers should avoid due to high levels of COVID-19, Garza noted.
President Andrés Manuel López Obrador enjoys a 60% approval rating and strong political support, although his decisions “concentrate power in the executive and give preference to state-run industries continue to worry investors and put a strain on U.S.-Mexico business,” Garza said.
On Jan. 21, US Energy Secretary Jennifer Granholm met with López Obrador in Mexico City to express concern over his energy reform proposal giving the government more control over the country’s energy market, Garza said.
“The U.S. delegation expressed concern that the initiative would impede U.S. investment in Mexico and impede clean energy and climate progress. Mexican lawmakers have yet to set a date to vote on the reform, but the vote could take place as early as March and it should pass,” he said.
The peso, which plunged in November just as the US borders were reopened to “non-essential travel”, has recovered and is now in a strong position, providing more incentive for Mexican nationals to spend cash. this side of the border. But a struggling Mexican economy may still pose problems on this side of the border, Garza said.
“There are a number of things at play here, which I think we will all feel in Brownsville and along the border,” he said. “First, inflation and Mexico’s policy response. They have raised interest rates and will be watching our Fed. Any weakening of the currency will impact Mexico’s purchasing power, and despite pent-up demand following travel restrictions, the Mexican economy is weakening and people are feeling it.