Economics: April data confirms a slowing trend

MEXICO - Report 29 Apr 2019 by Mauricio González and Francisco González

With the coincident index accelerating its downtrend of the past nine months and the leading indicator also slipping lower, numerous multilateral international institutions and analysts have continued to scale back their estimates of Mexican GDP growth, as have domestic authorities including Banco de México and the Ministry of Finance. Industrial output fell for a fourth consecutive month in February, slipping by almost a full point compared to a year earlier, pulled lower by flagging oil production and construction activity. And readings of consumer and producer sentiment began to slow their extended recoveries as company owners expressed greater reticence about investing at this time.

But the picture was far from universally negative. Manufacturing sustained a moderate pace of growth for the fourth month, gross fixed investment stemmed its steep decline of recent months, private consumption sustained its positive 2018 pace through January, and 12-month consumer inflation was more than a full percentage point lower in March than a year prior.

But the public sector financial outlook, especially that of Pemex, continues to stoke concerns. The economic policy guidelines the authorities published at the start of April contain what we regard as generally realistic macroeconomic framework projections both for the remainder of 2019 and full-year 2020. But it is far from clear how officials expect to lower spending this year by the same 121 billion peso level of projected budgetary revenue shortfall in fulfillment of its continuing affirmation that it is determined to hold the public deficit to 2.0%, the primary balance at 1.0%, and public debt at 45.4% of GDP.

It will be especially important to analyze whether it is politically viable for the government to achieve cuts on that scale and still meet its priority commitments, and especially if it will be tempted to take a scalpel to the most effective existing social programs. The fact of an economic slowing will exert greater pressures for counter-cyclical spending aimed at helping to reactivate private consumption and give relief to the most vulnerable population groups experiencing reduced incomes. Moreover, officials continue to struggle to come up with viable rescue options for Pemex.

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