Simply Economics, from Mexico

Mexico City’s Severe Drought and Economic Consequences, Promising Growth in the Country’s Economy

Extreme drought increases costs and impacts Mexico City's economy. After April's ISE surprise, the economy is expected to grow by about 2% this year. Join us as we explore the economic implications of the severe drought in Cdmx and the promising growth in Mexico's economy.Sources:https://www.larepublica.co/globoeconomia/la-sequia-extrema-incrementa-los-costos-e-impacta-economia-de-la-ciudad-de-mexico-3891883https://www.larepublica.co/economia/tras-sorpresa-del-ise-de-abril-se-preve-que-la-economia-crecera-cerca-de-2-este-ano-3892086Outline:(00:00:00) Introduction(00:00:37) Extreme drought increases costs and impacts Mexico City's economy(00:03:04) After April's ISE surprise, the economy is expected to grow by about 2% this year

Duration:: 6m
Broadcast on:: 22 Jun 2024
Audio Format:: mp3

Extreme drought increases costs and impacts Mexico City's economy. After April's ISE surprise, the economy is expected to grow by about 2% this year. Join us as we explore the economic implications of the severe drought in Cdmx and the promising growth in Mexico's economy.

Sources:
https://www.larepublica.co/globoeconomia/la-sequia-extrema-incrementa-los-costos-e-impacta-economia-de-la-ciudad-de-mexico-3891883
https://www.larepublica.co/economia/tras-sorpresa-del-ise-de-abril-se-preve-que-la-economia-crecera-cerca-de-2-este-ano-3892086

Outline:
(00:00:00) Introduction
(00:00:37) Extreme drought increases costs and impacts Mexico City's economy
(00:03:04) After April's ISE surprise, the economy is expected to grow by about 2% this year

[Music] Good morning and welcome to Simply Economics from Mexico. It's Saturday, June 22nd. On today's show, extreme drought increases costs and impacts Mexico City's economy. After April's ISE surprise, the economy is expected to grow by about 2% this year. This coverage and more, up next. I'm David and you're listening to Simply Economics from Mexico. [Music] Mexico City has been facing a severe drought for over 16 months, affecting 100% of its territory according to the National Water Commission's drought monitor. The city started 2023 with its entire area classified as abnormally dry, but by May it had escalated to the severe drought category. Here to discuss the economic implications of this water crisis is our correspondent. Can you explain how the drought is impacting Mexico City's water supply? The prolonged drought has significantly decreased the water levels in the cutsimala system, which provides about 30% of Mexico City's drinking water. Low water levels lead to a higher concentration of sediments and pollutants, making the water more difficult and expensive to clean for consumption. The energy costs for pumping the water over 1,100 meters from its origin to storage tanks in the city are also substantial. These factors contribute to higher water distribution costs and potential supply cuts. What are the broader economic consequences of this water scarcity for Mexico City? The water crisis is driving up costs and inflation in the capital. Basic services like hospitals and homes are most impacted, as decreased water quality or rationing can lead to public health issues. The service sector, including restaurants, commercial buildings and residential properties, also face increased operating and maintenance expenses from having to pump water or purchase from tanker trucks. The situation could influence companies' decisions to establish or maintain operations in Mexico City, potentially affecting investment attraction, even though the city is an important business hub. Are there any infrastructure issues exacerbating the water supply challenges? Mexico City's water distribution infrastructure is aging and deteriorating, with pipes and conduction systems prone to leaks. Authorities estimate that up to 40% of the water is lost due to leaks before even reaching consumers. This alarming figure compounds the water crisis, especially during times of drought. Urgent investment is needed to modernize the obsolete pipe systems and treatment plants to reduce losses and improve supply efficiency. Reforestation and conservation of watersheds to enhance aquifer recharge and water quality are also key areas requiring investment. Thank you for that insightful analysis of the economic impacts of Mexico City's ongoing water crisis and drought. Clearly, substantial investments in infrastructure upgrades and environmental conservation will be critical to securing a sustainable water supply for the city's future. Speaking of Mexico's economy, some market analysts are claiming that the country's economic reactivation is being "pedaled" although they caution that more data is still needed to confirm this trend. Here with more details is our economics correspondent. What can you tell us about the latest economic figures? The Economy Tracking Index grew by an impressive 5.5% in April, according to the latest report from Dane, the National Statistics Agency. This is the strongest growth since October 2022, right after the pandemic. The monthly variation between April and March was 2%. And so far in 2024, the index has grown by 1.9%, significantly outpacing first quarter GDP growth of 0.7%. Those are some encouraging numbers. How are analysts reacting to this data? Are they revising their economic projections? Yes, these strong results have prompted some analysts to adjust their forecasts. BVI research stated that economic reactivation is being "pedaled" in Mexico, and they expect the growth moderation cycle that began in mid 2022 to turn a corner in the second half of this year. They are now projecting 1.8% GDP growth for 2024 and 2.8% for 2025 in line with the government's own estimates. What about other economic think tanks? Are they as optimistic as B. Bava? Anif Center for Economic Studies noted that industry and commerce are registering positive growth again after months of contraction. While their official 2024 GDP forecast remains at 1.1% for now, they said their perspective is bullish based on the recent positive data. However, they cautioned that April's strong performance may be partly due to calendar effects from the timing of Holy Week, so they are waiting for more data in the coming months to see if the positive trend is sustained. Aside from the headline growth figures, which sectors and activities are driving the economic rebound? The tertiary or service sector was the biggest contributor, adding 3.6 percentage points to the overall growth. Primary activities, like mining and agriculture, contributed 1.5 points, while secondary activities, such as manufacturing, added 0.4 points. Going forward, analysts at Groupa Boncolombia see positive trends in most service sector activities. However, agriculture and mining may continue to face challenges from adverse weather and a downward trend in commodity prices. Interest rates have been on a downward path recently. How might this impact the economic recovery? The central bank has cut rates by 125 basis points to 11.75% as of May. However, they remain cautious due to still high inflation and the global interest rate environment. Boncolombia analysts expect rates to fall to a neutral level of around 6% by end 2025. They see inflation ending 2024 at 5.7%, implying a gradual disinflation process. So borrowing costs are heading lower, but perhaps not as quickly as some would like to support faster growth. Thanks for that insightful analysis of the latest trends and figures in the Mexican economy. We will continue to monitor the data closely in the coming months to see if this rebound can be sustained. And with that, we wrap up our stories for today. Thanks for listening to Simply Economics from Mexico. We'll see you back here tomorrow. [music] [BLANK_AUDIO]