Forecasting the Impact of the COVID-19 Shock on the Mexican Economy

We forecast the short-term evolution of the Mexican economy after the COVID-19 shock. We take into account the fact that there is no similar shock observed in contem- poraneous data. We combine an econometric procedure with a basic SIR model of the pandemic. To make the forecasts we first calculate an estimate of the shocks that hit the economy starting in March 2020. We then produce several forecasts in which we make variations on two dimensions: introducing a path for the pandemic or not, and if we do, we consider three scenarios. The introduction of paths of the pandemic in which new cases fall has a positive effect on the economy. The main results are the following. First, the shocks that hit the economy starting in March 2020 have the potential to produce a slow recovery of economic activity. In a forecast not conditioned on any path for the pandemic, the annual growth rate of the economy recovers positive values in the second quarter of 2021. Second, in our baseline scenario that includes a pandemic path based on the SIR model, the recovery is faster, having positive growth rates in the first quarter of 2021. To maximize the benefits of a fall in new cases, policy makers should reduce persistent effects of the initial shock that hit the economy. Otherwise economic activity would tilt towards a longer recession.

Autor(es): 
Felipe Meza
Fecha de publicación:
Septiembre-2020
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