Economics: The economy continues to skirt recession
Economic news pointed largely in the same direction in September as it has for most of the year: downward. So much so that the threat of a recession continues to loom, although a chance remains that the Mexican economy can avert a technical one if it can skirt it before next year.
The same cannot be said for an industrial sector that has been trending lower for the past year and dropped by close to 3% in July, a setback that would be even more pronounced if not for less than a handful of strong-performing manufacturing segments.
Even as consumer sentiment continues to inch higher on the optimism scale, the second-quarter report on aggregate demand revealed that private consumption relinquished its role as the Mexican economy’s main growth driver, while public spending, and especially gross fixed investment, have acted as the main brakes on GDP. In fact, what little growth was achieved through the first half of the year was largely confined to exports, and that boost came primarily from shipments of non petroleum products, which may encounter significant resistance should US economic activity contract.
With inflation breaking back below 3%, and Banco de México implementing another quarter point rate cut just this past Thursday, the monetary authority may continue to try and match the Fed’s easing moves this year, but not necessarily moving into 2020 given the risk of a second major agency stripping Pemex of its investment grade status, and quite probably a reduction in Mexico’s sovereign debt rating,
One potential source of trouble is the extent to which the above factors and an official commitment to an overly optimistic macroeconomic and public finance forecast for next year could seriously pressure public finance, which in turn, could prompt officials to make more spending cuts that would further aggravate the lack of growth, or instead, relax the fiscal targets (a greater fiscal deficit, lesser primary surplus and greater debt). Such a course could have adverse medium-term consequences for the country’s macro-financial stability.
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