Economics: Clear harbingers of a slowdown

MEXICO - Report 18 Feb 2019 by Mauricio González and Francisco González

Data published in recent weeks regarding a range of production and aggregate demand components may foreshadow a more significant deceleration of the Mexican economy than most anyone was anticipating late last year. And while we have sustained since the third quarter a conservative 2019 GDP growth estimate that would have entailed a 3 basis point slowing from the 2% growth average of the past two years, the evidence demands that we scale back that projection even further.

Evidence includes the largest contraction in industrial activity since 2013 as construction and extractive activities are accelerating their respective downward spirals and manufacturing struggles to expand. Moreover, there are signs that the extended downtrend in gross fixed investment may accelerate.

Consumer optimism continues to grow and Inegi reports the rise in private consumption extended through November, but the most recent figures from retailers are cause for concern as they have revealed a significant drop in same store sales for the past two months.

Reasons for all this loss of growth momentum include potential weakness in US economic activity and demand for goods of Mexican origin, as well as a lack of visibility about the broader global economy. And we are also being reminded of how quickly the transition to a new federal administration tends to disrupt many forms of government spending as the new governing team tries to get up to speed in running their agencies and institutions and they struggle to devise new policies. But that factor is tending to deliver more of a shock than normal due to the López Obrador administration’s dedication to a historical transformation of the country and the governing system, its penchant for jarringly abrupt and often contradictory announcements and policy decisions, a problem aggravated by the relative inexperience of many new officials, could have an important effect on domestic and foreign direct investment during this year.

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