During the third quarter of 2019 Mexico’s GDP fell 0.2% below levels of a year earlier according to seasonally adjusted data released last Monday, putting the economy on track for its worst yearly performance in a decade. The economy was pulled lower by a negative performance in the industrial sector, an essentially flat tertiary sector, and only agriculture showing significant growth.
Even a couple of bright spots in last week’s economic news – the registering of close to a 500 million dollar trade surplus for October and a current account surplus for the second time in as many quarters after posting a deficit of more than USD 8 billion in the first quarter – simply underscored how economic weakness is depressing consumer and fixed investment-related imports.
In addition to the contraction in industrial production through September, readings of private consumption and fixed investment for August proved to be unfavorable. All of these developments have been reflected in a weakening of labor market indicators and in both consumer sentiment and spending.
We continue to witness troubling developments on the level of public finance, and the recently passed 2020 budget gives further cause for concern. Rather than addressing the continuing slide in tax and oil income, the government is sticking with its policy of budget cuts and under-spending while drawing on the nation’s oil fund to make up the shortfall, thereby potentially setting the stage for greater budget pressures next year. And adding to pressures on public finance, the story at Pemex remains depressingly familiar as the government continues to starve it of the capex and opex budgets it requires even as its oil and gas output, exports, and domestic sales continue to fall.
The day following the GDP report, the government unveiled a 43 billion dollar infrastructure program for 2020-24 in a bid to revive slumping investment, but skepticism remained, with many of the 147 projects consisting of older ones that were never completed or had been scrapped, and most of them not backed by the necessary profitability, technical or financial studies.
And by Wednesday, Banco de México cut its growth forecast for 2019 to a range of -0.2 to 0.2 percent, while we at GEA reiterate our previous estimate that GDP will contract by 0.1% this year.
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