Economics: Some indicators show slower declines but not recovery
Some of the demand and production indicators made public during August proved to be less dire than those of previous months. But despite those relatively slower declines, the fall in 2020 GDP remains on track to be in the double digits.
The accelerated negative trend the industrial sector embarked on since the beginning of this year slowed somewhat, with June’s percentage decline just over half the record setbacks reported for April and May, both of which were near 30%. For the entire second quarter, industrial activity plunged an annual 25.7%, a result closely in line with our own estimate. Rounding out the picture, manufacturing and construction fell 29.8% and 34.2%, respectively.
But not all indicators delivered less negative results. Private expenditure extended its free fall in May, surpassing April’s historical setback by more than a full percentage point, at the same time as gross fixed capital formation also accelerated its fall in May, tumbling 38.4% below levels of a year earlier.
In the context of the deep economic crisis Mexico is facing, one of the areas of government policy that has come under the greatest scrutiny and questioning is that of public spending. Difficulties have been further magnified by the administration’s fixation on what it labels as “republican austerity”, in which it slashes spending so much as to greatly undercut the efficacy of diverse programs and institutional management. A troubling case in point is the decision to significantly lower healthcare spending in the midst of a major pandemic.
Another risk for the public spending trend in the near future is the extent to which Pemex’s operating and financial performances have deteriorated, meaning that the federal government will have to continue looking for ways to keep the company afloat in the absence of any credible plan to put the company on a path toward sustainable financial and operational health. Unfortunately for Pemex, federal budget pressures will only increase given the severity of the economic crisis, thereby limiting the AMLO administration’s ability to sustain the illusion of a revived national oil company after having discarded any possibility of a fiscal reform or a more rational approach to spending.
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