The US economic recovery drives remittances to Mexico to historic levels

A day laborer in the United States.RICARDO ARDUENGO / AFP

Remittances in Mexico are reaching historic levels. In the first six months of 2021, money transfers reached 23,681 million dollars, more than the 19,290 million dollars that were sent to Mexico in 2020, 22.4% more. In June, 4.44 billion dollars in remittances sent from abroad entered Mexico, a slight decrease of 1.7% compared to the previous month, but an increase of 25.5% compared to the same month last year. The resistance of remittances, which reached a record in May, is due to the economic recovery in the United States, where some 11 million Mexicans live who send part of their income to their relatives in the neighboring country. It is also a reflection of the stimulus programs of the US government, which consists of unconditional support.

Last week, the US Department of Commerce reported that gross domestic product (GDP) grew 1.6% in the second quarter of the year compared to the previous quarter.

Compared to the same quarter last year, the rebound was 6.5%.

This implies that the first power has not only experienced the shortest recession in history - from February to April 2020 - but has also conquered lost ground.

The success of the assistance programs has led authorities to put aside immediate concerns about an increase in inflation.

MORE INFORMATION

• The United States economy grows 1.6% in the second quarter and recovers the pre-pandemic level

• The Mexican economy grows 1.5% in the second quarter of the year

Also last week, the National Institute of Statistics and Geography (Inegi) reported that the Mexican economy grew at a similar rate of 1.5%, largely driven by foreign trade. The Government of President Andrés Manuel López Obrador has placed its hopes of a recovery in the economy on the entry into force of the new free trade agreement, the T-MEC. Exports grew at an annual rate of 76.6% during the second quarter, its highest advance for the same period since it has been registered. This has translated into a recovery in employment and unequal income within Mexico, with states in the north of the country with manufacturing plants linked to trade with the US and Canada recovering, while states in the center such as the capital Mexico City,are experiencing a decline in employment compared to before the pandemic.

Mexico has become more dependent on remittances in recent years.

An analysis by Juan José Li, senior economist at BBVA in Mexico indicates that remittance inflows in 2020 were historic, contributing 3.8% of the national GDP, a significant increase when compared to 2006 when the contribution was 2.6 %.

In addition to the economic stimuli in the United States, the depreciation of the peso against the dollar from the pandemic contributed to this increase.

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