Mexico's economic recovery slows down and the country enters a recession

Key facts:

The decrease in GDP is 0.1% in the last quarter of the year, while the use of bitcoin grows.
The recession of the Mexican economy occurs after two consecutive periods of negative numbers.

The year of Mexico’s economic recovery stalled. The 0.1% drop in the economy during the last three months of 2021, compared to the previous period, represents a setback that places the country among the furthest behind on the continent.

According to preliminary data from the National Institute of Statistics and Geography (Inegi) released this Monday, this drop of the Gross Domestic Product could be added to the setback that was recorded in the third quarter of 0,4%.

Although the confirmation of this estimate is still pending, which will be disclosed on February 25, the figures contrast with the forecasts of the Ministry of Finance, that foresaw a growth of 6.5% in 2021; and from the Bank of Mexico, which expected one of 5.4%.

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Despite the fact that the first two quarters of the year showed positive -and hopeful- figures after the year of the pandemic, the reality of the constant inflation of the Mexican peso, supply chain problems, declining foreign investment as a result of domestic politics, and the outbreak of the omicron variant have hit the economy like a sledgehammer.

Regarding 2020, the Inegi estimates GDP growth of 5%, which falls short if the 8.3% drop in the year of the pandemic is considered.

Consider that a technical recession is not equivalent to an economic crisis, it only represents a decrease in economic activity in consecutive periods.

It was foreseeable that after the rebound of the negative numbers of 2020 a situation like this would occur, which might not have drastic repercussions in the Mexican’s pocket in the first instance. However, it could affect the basic basket in the medium term if the trend continues, a sensitive issue for those who receive a minimum wage.

The role of bitcoin in the economy of Mexico

The panorama is different if the magnifying glass is put on the use of bitcoin in Mexico. According to a Finder study, Mexico could be the country that has grown the most in Latin America regarding the use of cryptocurrencies, as reported by CriptoNoticias.

Although the result of that study differs greatly from others (Chainalysis), which place Mexico behind Argentina, Colombia and Brazil, the trend towards increased bitcoin adoption could be a result of the reputation cryptocurrencies have gained as a store of value and cheaper payment methods.

In this line, the National Bank of Mexico could be preparing to compete in these emerging markets with a digital currency (CBDC) issued by the central bank itself, as has happened in many countries. As the BIS suggests, this could be a consequence of the growing adoption of cryptocurrencies around the world.