New signs of further slowing

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

A range of indicators published in recent weeks appears to foreshadow a more significant deceleration of diverse production and aggregate demand components. Industrial production fell an annual 2.5% in December, the sector’s worst percentage variation since November 2009, as the drag of a long deeply depressed mining sector has increasingly been accompanied by significant declines in construction activity, even as manufacturing growth slowed to a crawl. The slowdown in manufacturing reflected, in part, a possible softening of external demand as growth in non petroleum exports lost considerable momentum in the last two months of 2018, an incipient negative trend that is likely to become more pronounced to the extent that the US economy slows.

Gross Fixed Investment had already been trending lower but fell by more than 2% in November, with further setbacks possible going forward. It could experience even more pronounced contractions this year in large part due to the uncertainty generated by the often abrupt, troubling and contradictory statements and actions from the new federal government.

Broader readings of economic activity pointed in a similar direction as the Global Economic Activity Index, or IGAE, fell a seasonally adjusted 0.4% in December compared to November, with all three sectors contracting. GDP growth slowed to 1.7% during the fourth quarter of 2018 while secondary output fell by close to a full percentage point.

There has been positive news on the inflation front as January’s 4.37% CPI rate was the lowest recorded in two years, followed by a further fall during the first half of February, when the 3.89% rate marked the lowest reading since the second half of December 2016. But in recent reports Banco de México has warned that the balance of inflation risks remains biased to the upside. Moreover, in its most recent quarterly report on inflation, Banxico tweaked its inflation intervals for the next two years only slightly, but more significantly revised its economic growth forecast intervals lower, shaving six basis points off both that of the current year and of 2020.

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