Mexico City — Money transfers sent by Mexicans in the U.S. will close this year at a record high, but in 2022 the monetary ‘muscle’ those resources represent for the country will lose some strength.
The “blessed” remittances, as President Andrés Manuel López Obrador often refers to them, will total some $50 billion this year, according to government estimates. BBVA México forecasts they will total $50.6 billion, while the deputy governor of the central bank (Banxico), Jonathan Heath, calculates that wire transfers could surpass $51 billion.
The increased estimates would mean 2021 remittance values would be between 20-25% above last year’s levels, which would make for a good year, and not just for Mexico, although the country is favored by the large number of Mexicans working in the U.S.
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The value of remittances has increased across Latin America, but Mexico has seen the strongest growth.
However, in 2022 remittances will likely decrease, principally due to the end of subsidies provided by the U.S. government to support families’ expenditure during the pandemic and the subsequent economic recovery.
BBVA México’s chief economist Carlos Serrano told Bloomberg Línea that remittances are forecast to continue growing significantly in 2022, with the bank predicting an increase to $56.7 billion, but which would represent weaker growth than during 2021.
“This year we will see a 25% growth in remittances, and we will see strong growth continue in 2022, but significantly less so, and we are forecasting growth of 12%. It will be a good year, but with less growth than we saw in 2021, which was record growth”.
Carlos Serrano, BBVA
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Serrano said the growth of remittances in 2021 is largely explained by a strong labor market recovery in the U.S., particularly in the services sector in which many Mexicans are employed, and where, in some cases, better-paid jobs were found because of upward salary pressure.
Another factor that attributed to a good year for remittances was the assistance offered by the U.S. government to families to mitigate the effects of the crisis, with some people receiving up to $600 a week.
Both factors, the recovery of the labor market and the government subsidies, will cease to exist in 2022, however, and which will explain a slowdown in the growth of remittances.
“The unemployment rate when the crisis hit was almost 13% in the U.S., now it’s 4.5%, so the majority of jobs have been recovered. I think the rate will continue to drop next year and will possibly be below 4%, and there is not so much space for the earnings (from remittances) that we saw this year”.
Carlos Serrano, BBVA
Do Remittances Generate Growth?
President López Obrador has said that part of Mexico’s economic recovery is due to the inflow of remittances to the country’s states because those resources drive consumption in cities and towns, however, data shows that in the recent months in which remittances have been higher, economic activity has lost traction.
The Global Economic Activity Index (IGAE) shows that, since the end of May, economic activity began to decelerate, with the third wave of Covid-19 between May and July putting the brakes on the rate of recovery.
In contrast, during that same period, the value of remittances began to hit record levels, totaling $4.52 billion in May, $4.54 billion in July, $4.74 billion in August, and $4.81 billion in October.
Serrano explains that remittances were not channeled into infrastructure in towns, or used as investment for entrepreneurship or to open businesses, which could add value to certain economic sectors and drive the economic recovery.
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“Remittances are spent on the consumption of very basic needs such as food and medicines, the reality is that there has been an increase in the levels of poverty and the sad thing is that, if it had not been for the remittances, things would have been worse. Remittances offer support in subsistence consumption, not as a motive for investment in most cases”.
Carlos Serrano, BBVA
In Michoacán state, the second-biggest recipient of remittances to the country, families living in the towns in an area called “Tierra Caliente” (the “Hot Lands”) are, in the majority, comprised of senior citizens that spend their money on buying food and medicines in the same community or in the nearest cities.
Although they are towns without paved roads, drainage or telecommunications, the remittances that reach such towns are not channeled into urban improvement works that could lead to a greater demand for cement, or generate jobs in the construction sector.
The Montaña Tlachinollan Human Rights Center has revealed another use of remittances. Headquartered in the mountains of the state of Guerrero, the center said that families of indigenous day laborers seek to improve their living conditions and migrate to states in the country’s north, or over the border into the U.S., but on their way run into situations that put their lives at risk.
The center said that in September, five migrants from the Guerrero mountains were killed in New York and that the Mexican authorities offered no help to their families to assist in the repatriation of their bodies for burial. “Remittances are also used to pay the $10,000 costs of repatriation by air of those whose dreams were truncated on the border of death”, it said.
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