Economics: News is consistently negative

MEXICO - Report 04 Nov 2019 by Mauricio Gonzalez and Francisco González

The economic news published in October pointed almost unrelentingly toward a further deterioration of the economy as activity in Mexico contracted 0.4% in August compared to the same month a year earlier, according to the Global Economic Activity Index or IGAE. Perhaps the only bright spot was the extent to which consumer inflation weathered a seasonal rise in electric power rates to remain near 3.0% through the first half of October. But for the most part, prices are falling as a result of the continuing erosion of domestic demand under the weight of heightened uncertainty, falling productive investment and the weakening of the labor market.

There has been a troublingly abrupt deceleration of growth in the number of formal sector jobs, an indicator that is experiencing its sharpest drop since the 2009 recession.
Meanwhile, the tertiary sector, which has been the main growth driver in recent years, contracted slightly during August and throughout the third quarter, while industrial activity dropped a full percentage point, with only the much smaller agricultural and utilities sectors showing growth.

The August IGAE foreshadowed the preliminary reading of third quarter GDP released just this past week, which showed an identical 0.4% contraction in activity for the July-to-September period, based on original series data. That report, along with the downwardly revised contraction recorded for the second quarter (-0.8%) left GDP flat for the first nine months of the year. It also prompted us to downwardly revise our economic growth forecast for 2019.

The extent of the slowdown and the government’s response have raised concerns about the direction of public finance, as the administration becomes increasingly focused on spending cuts and finding ways to fund its priority programs and projects. Over the weekend, the finance minister warned that further spending cuts might be implemented should the government exhaust all FEIP funds (which at the end of September totaled slightly more than 260 billion pesos) to compensate for the shortfall in tax and oil revenues.

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