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Despite economists’ expectations of a decline in Mexico’s GDP in 2021, due to the COVID 19 Recession, Mexico’s GDP has grown by 6 percent. How was this possible?

By Angel Cortes

In his  January 5, 2022 address, Mexico’s president Andrés Manuel Lopez Obrador, announced that Mexico’s GDP grew by 6% in 2021. Reporters were very skeptical of Lopez Obrador’s comments, as his economic policies haven’t been as effective in 2021 and the economy was expected to contract in 2021 by 2 – 4%. Many are still without jobs and inflation is at a 20 year high. The president, with his over the top tone and demeanor, exclaimed “Thank you to our compatriots in the United States!! They’re the reason why we’re still going strong.” The president is referring to the billions of dollars Mexicans in the United States are sending to their loved ones in Mexico. Why is this the case?

Mexicans in the United States sending money to their families back home isn’t a new phenomenon. Andrew Selee, president of the nonprofit Migration Policy Institute, says that Mexican American families have been sending money back to their family in Mexico for 20 to 30 years. These relationships don’t seem to show any sign of stopping as this inflow to Mexico as of July 2021 has amounted to a record $28 billion. This record is attributed to the COVID 19 pandemic as the worsening economic situation in Mexico has caused families to send more money to Mexico. This is a result of the over 11 million Mexican nationals in the United States, 60% of whom came to the US before 2000. Myrna Mendez of Dallas, says “ I donate more money to my family down there in Mexico because la pandemia is something we never lived through. It has motivated me to send more money.” Mendez’s brother in Northern Mexico is suffering from a medical condition that requires a lot of money to treat, so she is constantly sending money. Apps like Paypal, Cashapp, etc make this process easier and have contributed to the rapid increase in this inflow. Construction worker Ruben Salinas says, “Work for Mexican immigrants documented and undocumented is booming. Factories in the US are offering a higher salary due to the lack of workers.” This is also another factor in why remittances to Mexico have increased. Remittances have contributed to 4 % of Mexico’s GDP, with the other 96% coming from exports and oil. However, a record 7.6% inflation has hit Mexico which has also contributed to the increase in remittance.

Many experts on US-Mexico relations have speculated that record inflation could be another reason for the increase in remittances. Inflation has affected the daily lives of Mexican citizens in 2021. This has caused double digit inflation on basic goods, like lemons, bananas, meat, electricity and other basic necessities. El Banco de México, Mexico’s national bank, states that this record inflation has been caused by the economic conditions in other countries around the world, more importantly by its northern neighbor, the US, which registered a 6.5% inflation rate in 2021. El Banco de México has elevated interest rates by 5% to combat inflation. With this approach, the economy is expected to grow by 2% (as of December 2021). As the economy of Mexico grew in 2021, las remesas, or remittances in English, are very likely a driving factor to its growth. Mexico hasn’t had the best 2021, with record inflation and recovering from a worldwide recession. This increase in remittances could be attributed to many factors, but it was able to help Mexico combat inflation indirectly. The Mexican government barely provided any stimulus to businesses and lowered government spending, causing a depreciation of the Mexican Peso. Economist Jose Luis de la Cruz, said that “Remittances offer a relief , as the value of the dollar has increased compared to the peso. With the increased value in the dollar compared to the peso. Mexicans are able to buy a lot more products despite the inflation.” This increase in consumption and quantity has contributed to GDP growing in 2021. With all these circumstances, it appears that there is some correlation between inflation and increased remittances, as the cost of basic goods has become unaffordable for the average Mexican. However, family ties remain strong and remittances have benefitted many families and the Mexican economy. Remittances will continue to be a major player in the Mexican economy with the high Mexican population in the US and the over 30 million Mexican-Americans. □