Rocked by the quake, Mexico’s economy could get a boost from the rebuilding

Thousands in Mexico City were left homeless by the Sept. 19 earthquake, and experts say that will put pressure on the city's real estate market. Above, a multistory apartment was one of thousands that suffered damage.
(Pedro Pardo / AFP / Getty Images)

The magnitude 7.1 earthquake that shook central Mexico will certainly damage, but not debilitate, the Mexican economy and might even give it a boost next year as reconstruction efforts get in full swing.

That’s the view of economists now assessing the impact of this month’s powerful quake, which damaged or destroyed thousands of buildings and left at least 355 people dead.

The earthquake “is going to delay the advancement of the economy, but it’s not going to derail the economy,” said Alfredo Coutino Zavala, director of Latin America for Moody’s Analytics.


Coutino estimated that Mexico would see a drop in projected growth from 2% to 1.8% for the year.

“That estimate is made under the assumption that economic activity will go back to close to normal by November, which is a strong assumption because we still don’t know how damaged economic activity is, and we don’t know if reconstruction will take place soon,” he said.

AIR Worldwide, a Boston-based software company that models risks from natural catastrophes, estimated that industry insured losses from the temblor would reach between 13 billion pesos and 36.7 billion pesos, or anywhere from about $700 million to $2 billion.

On Tuesday, Mexico City Mayor Miguel Angel Mancera announced a reconstruction plan, including a loan program for those who were unable to return to their damaged homes, and the creation of a commission for reconstruction, recuperation and transformation of the city.

Mexico City officials have so far put the number of affected properties at 7,649, with 321 buildings considered uninhabitable.

Complicating matters are accusations of corruption — of officials ignoring shoddy building practices or accepting bribes. Some residents have charged that buildings toppled because they weren’t constructed according to the stricter norms put into effect after the devastating magnitude 8.0 earthquake of 1985.


Coutino said these concerns may lead to delays in distribution of the city’s disaster relief fund.

“The government has to be very careful about where to send the money,” he said.

Manuel Molano, the deputy director of the Mexican Institute for Competitiveness, a think tank, said the centrally located, affluent Mexico City neighborhoods badly affected by the earthquake could see a dive in real estate value.

“Roma and Condesa became some sort of a fad — they’re trendy and hip places for bohemian life,” he said. “But we knew that these were highly vulnerable places to earthquakes because of the soil composition.”

An estimated 17,000 Mexico City residents were attended to at shelters as of last weekend, according to Mancera. It’s a tiny percentage of the population in a mega-city of 20 million. Still, the search for housing will place tremendous pressure on the real estate market in the next 12 to 24 months, Molano said.

He estimated a rise in real estate prices of 5% to 10% above inflation in central areas of the city outside the badly damaged Cuauhtemoc area, such as the Miguel Hidalgo and Alvaro Obregon municipalities.

The earthquake struck on Sept. 19, the anniversary of the 1985 earthquake. Some parts of the city never fully recovered from the quake 32 years ago, a reminder that rebounding from this month’s quake could be more complicated than is initially apparent.

Evidence of the economic stagnation caused by the 1985 earthquake is scattered throughout the Roma and Condesa districts. Vacant lots have resisted development, left in a purgatory of legal disputes among multiple owners who can’t decide whether to sell and if so, to whom, Molano said.

Molano himself has a connection to one such place — an empty corner in Roma where a hospital once stood. His grandmother’s husband, a doctor, was headed there to perform surgery on Sept. 19, 1985, when he watched the building collapse before his eyes, his colleagues crushed by the rubble.

“That piece of land never recovered; it’s still vacant,” Molano said.

This time, economists hope the impact of the earthquake will be shorter-lived, since the damage and loss of life are much lower.

Coutino estimates that 2018 could actually see a small boost for Mexico’s gross domestic product as construction efforts get underway, workers are hired and the government makes use of its disaster relief fund. Coutino put this bump in GDP at between 0.4% and 0.5%.

Alonso Cervera, the chief economist for Latin America at Credit Suisse, said Mexico has been on a path of steady but subdued annual economic growth of between 2% and 2.5% for the last few years, and he expected it would stay that way. Even as the North American Free Trade Agreement is renegotiated and tensions remain between President Trump and his Mexican counterpart, Enrique Peña Nieto, Cervera said he continues to predict a path of relative economic stability.

“We all seem to be making assumptions that the relationship will remain positive with a decent NAFTA outcome,” Cervera said. “If it doesn’t, then we will have to change our outlook.”

While the overall message is one of cautious optimism, for the small-business owners scrambling through this period of uncertainty, the earthquake has brought a period of financial loss without a clear endpoint.

Alicia Lopez Fernandez de Lara, who runs a piñata store with her husband, said returning to normalcy could take time. The couple has rented a space in a popular district for piñatas for the last 12 years. The building was severely damaged in the quake, and Lopez said it will be near-impossible to find another rental in the same area at a price point they can afford.

“It’s difficult because we don’t know if our clients will follow us to where we go next,” Lopez said.

Her husband’s family has been making piñatas for 80 years, and the store, Piñatas Mena Bambolinos, has become known for its specialty creations, whether they’re modeled after an obscure video game character or a photo of the birthday boy.

Lopez said if they can find a new location and open before December, their busiest season, perhaps they can recover.

Tillman is a special correspondent. Cecilia Sanchez of The Times’ Mexico City bureau contributed to this report.


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