Mexico's president sees faster return to pre-pandemic economy

© Reuters. Mexican President Andres Manuel Lopez Obrador gestures during a news conference at the National Palace in Mexico City, Mexico June 15, 2021. REUTERS/Luis Cortes

By Anthony Esposito

MEXICO CITY (Reuters) -Mexico's President Andres Manuel Lopez Obrador said on Friday he expects that by the third quarter the Mexican economy will reach pre-pandemic levels, after gross domestic product contracted by some 8.5% last year driven by pandemic-related fallout.

The president's faith in a faster rebound is more optimistic than the central bank's latest forecasts.

"Without a doubt, by the third quarter of this year we will already be (at the levels) we were at before the pandemic," Lopez Obrador told a news conference.

Mexico's economy grew 24.8% in May compared with the same month last year, as a recovery from a slump made worse by the coronavirus pandemic gathered pace, a preliminary estimate published by national statistics agency INEGI showed on Thursday.

If the preliminary estimate is confirmed, May's activity was only about 0.4% behind the level reached in February 2020, the last full month before pandemic restrictions began to hit the economy, according to an index compiled by INEGI.

A continued, yet gradual, easing of coronavirus-related restrictions that began in late January has helped Mexico's economy, said Marcos Casarin, chief LatAm economist for Oxford Economics.

"The reopening of the tourism sector, which could add a substantial 15% of GDP in Mexico, has also happened sooner than we expected, which has helped to revive the struggling services sector," Casarin added.

But according to Mexico's central bank, only if economic growth this year can approach 7% will the economy recover to its pre-pandemic level from the end of 2019, and not until the fourth quarter of this year.

The bank added that if 2021 growth comes in closer to 6%, recovery to the pre-pandemic level would likely be delayed until the second quarter of 2022 or even later.

Goldman Sachs (NYSE:GS) economist Alberto Ramos forecast Mexico's GDP growth would firm to 6.0% in 2021, "with risk skewed towards a higher print."

Ramos based his forecast on the strong performance of the economy in fourth quarter, additional expansion in the first quarter and expectations for a "gradual but steady progress on the COVID vaccination front and strong external demand for the remainder of 2021."