Sunday, December 04, 2022

Remittances, Inflation and Economic Dynamics

The Mexican economy has shown signs of unknown strength. Recent information on three key variables indicates that, in an unfavorable environment, the situation in Mexico is under control and with a better-than-expected outcome. The variables are GDP growth in the first and second quarters, June inflation and foreign exchange inflows through remittances received. The information, compared to our neighboring economies, the United States and Canada, is key to explaining different behaviours.

The first variable is GDP. The quarterly figures for Mexico are: 1 percent increase in the first quarter and 1 percent increase in the second, while in the United States it was -0.4 and -0.2 in the first and second quarters, respectively, and for Canada, the data were 0.8 and 1.1 percent. Were. So while in the US they’ve had two consecutive quarters of negative data, in Mexico and Canada we’ve grown one percentage point each quarter. The US economy is back, while in Canada and Mexico we have grown little, but our economies continue to expand.

The second variable is inflation. US data follows: Annual inflation as of last June stood at 9.1 percent, rising compared to 8.6 in May. As of June, Canada recorded an annual rate of inflation of 8.1, rising from 7.7 in May. Mexico recorded a record 7.8 percent in June, also rising compared to May’s figure, which was 7.6 percent. The US economy is facing major complications in this matter, as its central bank has decided to increase interest rates by 0.75 percentage points in the last two meetings, leading to a stagnation in investment. Despite record low inflation in Canada and Mexico, monetary policy has also been tightened, which will affect investment.

The third variable, remittances, the June figure is impressive as $27,565 million were received in the first half of this 2022, an increase of 16.6 percent compared to the first half of 2021, pointing to the end of the year with an amount Is. over 55 billion dollars. In addition, the data for June, remittances of $ 5 thousand 153 million, is 15.6 percent higher than a year ago, which, in turn, was higher than that of June 2020. Two additional details are important: last June 1.2 million 356 thousand consignments were received and the average shipment was $ 408, i.e. 8 thousand 400 pesos.

Remittances from our compatriots, originally from the United States, but also from Canada, constitute an outflow of resources for these two countries. For this reason, while for us they are an important source of resources for families located in the lower tithe of the distribution, for them it means depleting resources from social programs, or from the remuneration received by Mexicans there and transferred to Mexico. goes. Thus these incomes have a positive effect on economic activities.

So all three economies face problems: slowing growth in Mexico and Canada, while it has stalled in the United States; Rising inflation, though sharper in the US; Remittances to Mexico for a very significant amount, which helps our economy significantly as well as an outflow of resources to Canada and the US. These differences are explained by decisions that are made by those responsible for economic management and which operate to a different extent. But we must also acknowledge what a national drain is: the migration of millions of compatriots in search of jobs with good remuneration has resulted in the injection of beneficial resources to our economy.

It is clear that the decisions of the government matter. The Biden government implemented a comprehensive economic stimulus program that resulted in the growth of its economy, transmitted to its main trading partners: Canada and Mexico. The incentives that still work these days are not for Americans who have seen their investments slowed by Federal Reserve-set interest rates hikes, but for Canadian and Mexican industries that track their exports to the United States. keep.

In addition, due to the rise in prices, monetary measures have been implemented in the three countries, which have not been efficient, but have also proposed increases in agreements and subsidies that reduce the rise in prices. Thus the economies of Canada, Mexico and the United States undoubtedly have synchronicity, which is explained by the integration of their productive systems. But government decisions and the resources our migrants send to their families explain the differences seen.

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