The coronavirus is gutting economies around the world, but the damage is proving particularly damaging in Mexico, a country that was already in slump before the pandemic hit.
Analysts are now sounding the alarm over Mexico’s financial stability, with Fitch downgrading the country’s sovereign debt to its lowest investment grade above junk bond status. The ratings agency cited both the coronavirus lockdown and the government’s “ad hoc policy interventions” as contributing factors.
Moody’s followed suit, downgrading Mexico’s rating and citing lower growth potential, the administration’s change in energy business model and policy decisions over the last year “dampening business sentiment and investment prospects.”
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President Andrés Manuel López Obrador’s management style has rattled investors since he took office in 2018, contributing to a stagnant economy even before the arrival of the deadly coronavirus forced the economy to shut down.
“Normally, what markets and analysts want — and in this case also credit rating agencies — is that a certain economic orthodoxy be followed, that you can have a certain stability in your fiscal and economic policy decisions,” said Rodrigo Pérez-Alonso, a financial analyst and former member of Mexico’s Congress.
But under the left-leaning López Obrador, he said, there has been a surprising reluctance to ramp up public spending to help weather the coronavirus storm.
López Obrador’s refusal to suspend tax payments or provide private enterprise with a stimulus package — measures that the U.S. embraced last month — has furthered the growing rift between the government and the business community.
His administration was slow to respond to the coronavirus, leaving states to pick up the slack, but López Obrador has since acted on the recommendations of Hugo López-Gatell, the epidemiologist in charge of the government’s public health response to the pandemic.
As of Friday, the country had about 6,300 coronavirus cases and nearly 490 deaths.
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López Obrador has refused to take major actions to keep the economy afloat, while protecting the federal budget assigned to his pet projects.
Some of those projects include canceling a $13 billion Mexico City airport project that was 30 percent finished, only to announce construction of a new airport at a different location. He also nixed oil field auctions in favor of a new government-owned refinery in his home state of Tabasco.
Investors were particularly rattled last month when López Obrador unilaterally canceled a nearly finished billion-dollar brewery owned by Constellation Brands, which markets Corona beer in the United States.
And despite plummeting industrial exports, falling remittances and a frozen tourism industry, López Obrador has shunned proposals to inject cash into the economy.
The latest projection from the International Monetary Fund is for Mexico’s economy to contract 6.6 percent this year, outpacing the estimated 3 percent contraction for the global economy.
A downturn of that magnitude is likely to spur more migration to the U.S., where the economy has ground to a halt.
Manuel Suárez Mier, an economic consultant who is predicting a double-digit contraction in Mexico, said increased migration is inevitable.
“You will have a massive exit of people,” he said, adding that the situation won’t be much better for those who stay.
“When Mexico loses its investment grade, all the pension funds and many corporations who have investments in [Mexican] public or private bonds will have to drop them, because regulations compel them to not buy junk bonds,” he said.
But Mexico’s financial institutions are stronger now, largely as a result of reforms undertaken after the cyclical economic downturns that plagued the country from the 1970s into the 1990s.
A major factor in those crises, according to Suárez Mier, was the weakness of the central bank, Banco de México, and the peso’s controlled exchange rate, which put at risk the country’s international reserves.
This time around, López Obrador can lean on an autonomous Banco de México, with international reserves of more than $180 billion, and standing lines of credit from international financial institutions like the IMF.
In response to Friday’s credit rating cuts by Fitch and Moody’s, Mexico’s Finance Secretariat touted the country’s still-ample lines of credit.
But just a day earlier, López Obrador met with Banco de México chief Alejandro Díaz de León Carrillo on Thursday, asking the central banker to accelerate central bank payments due to the federal treasury next year. Despite the unorthodox request, López Obrador said he remains committed to the bank’s autonomy, adding that he wants to see the country through the crisis without increasing public debt.
That will prove nearly impossible, as ratings agencies and international financial institutions have predicted the recession will increase Mexico’s sovereign debt by at least 2 percent of the country’s gross domestic product (GDP), from the relatively healthy 53 percent where it stands now.
That’s a debt-to-GDP ratio the United States hasn’t seen since 2001, when public debt stood at 54.8 percent. The current U.S. debt ratio is 106.9 percent, and expected to grow due to coronavirus relief packages.
López Obrador has remained relatively upbeat and dismissive of external warnings.
On Thursday, he shrugged off concerns about his economic plan, saying critics were only trying to “discredit” Mexico and his administration.
“He has his own script,” said Pérez-Alonso. “He’s like an actor onstage with the theater burning, but he wants to follow his script.”
“The issue is that he’s starting to smell the fire, and realizing it isn’t going to be so simple,” Pérez-Alonso added.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
