Recession phase: Mexico’s economy contracts for the first time in a decade

30/01/2020
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13:00
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Newsroom & Agencies
Recession phase: Mexico’s economy contracts for the first time in a decade
Mexico is Latin America’s no. 2 economy - Photo: Edgard Garrido/REUTERS

Recession phase: Mexico’s economy contracts for the first time in a decade

30/01/2020
13:00
Newsroom & Agencies
Mexico City
Dave Graham, Sharay Angulo, Miguel Gutiérrez, Catherine Evans & David Gregorio/REUTERS & Rubén Migueles/EL UNIVERSAL
-A +A
Mexico’s economy contracted last year for the first time in a decade as businesses curbed investment due to concern over the economic management of President Andrés Manuel López Obrador

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Mexico’s economy contracted last year for the first time in a decade, data showed on Thursday, as businesses curbed investment due to concern over the economic management of President Andrés Manuel López Obrador, and forecasts for 2020 are also weak.

Adjusted for seasonal swings, Latin America’s no. 2 economy contracted by 0.1% in 2019 after growth of just over 2% the previous year, according to a preliminary estimate published by national statistics office INEGI.

“Today’s figures essentially confirmed that Mexico was one of the world’s worst-performing large emerging markets in 2019,” said Capital Economics in a note. “The carryover from the weak performance in 2019 will weigh on conditions this year.”

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Gross domestic product (GDP) was unchanged during the fourth quarter compared to the previous three months, INEGI said.

That, at least, was slightly better than the consensus forecast in a Reuters poll for a contraction of 0.1%. A final estimate for the quarter will be published on February 25.

Mexico’s economy struggled during the first year in office of López Obrador, a leftist who promised to root out corruption and chronic inequality when he took office in December 2018.

López Obrador, who has pledged to deliver annual growth of 4%, shrugged off the GDP data as a yardstick from a “neoliberal” era whose policies had benefited a select few and said wealth was now spread more equitably.

Did you know Mexico's economy grew 0% in 2019?

“They don’t matter that much to me, because as I say, growth may mean that there’s more money in a few hands,” he told a regular government news conference. “It’s very important to have a better distribution of income and that the benefits reach all.”

Foreign investment has held firm in Mexico under his government, but domestic businesses have been warier.

Gross fixed capital investment fell by 5.2% on the year during the first 10 months of 2019, according to figures published by INEGI this month.

Earlier this week, Carlos Salazar, head of Mexico’s powerful CCE business lobby, told a news conference that “uncertainty” had eaten into domestic investment last year.

However, the U.S. ratification of a new North American trade agreement this month and the roll-out of major infrastructure projects augured more positively for 2020, he added.

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Capital Economics agreed but was still downbeat, forecasting that growth will be “much weaker than most expect” with the economy expanding just 0.5% this year.

López Obrador’s decision to cancel a partly built, USD $13 billion new airport for Mexico City and his retreat from the prior government’s liberalization of the oil and gas industry stirred concern about his economic stewardship.

The president said the airport project was tainted by corruption, but its cancellation incensed business leaders.

The last time the Mexican economy suffered an annual contraction was during the sharp recession in 2009 under former president Felipe Calderón's administration following the global financial crisis.

A breakdown of the latest GDP figures showed that weakness in manufacturing had fueled the downturn.

Secondary activities, which include manufacturing, slipped by 1.7% last year. Primary activities such as farming, fishing, and mining rose by 1.9%, and tertiary activities, which capture services, meanwhile advanced 0.5%, the data showed.

During the July-September period, the economy stagnated quarter-on-quarter and shrank by a tenth of a percentage point in each of the three prior quarters, INEGI said.

How will Mexico overcome a mild recession?

What is a recession?
Technically, it is said that an economy is in recession when it registers two consecutive quarterly downward variations. Although this condition is not completely fulfilled in the case of Mexico, there was a decline of the economy during the last year after achieving a 2.1% growth in 2018, making it the first fall in 10 years, which would mean Mexico’s economy would be in a recession phase, that is, with a downward trend in the economic cycle.

Nevertheless, defining a recession would require more analysis elements, so it will be until February 25 after more GDP analysis when a concrete answer will be given.

Mexico's economy: declining exports and stagnation

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