Economics: Ending 2019 on a low note

MEXICO - Report 23 Dec 2019 by Mauricio González and Francisco González

The economic indicators and news from the final weeks of 2019 added to the general impression of a softening economy, with especially troubling declines in both consumer spending and private investment, even as the retreat in industrial production deepened. Gross fixed investment accelerated its fall in September for an eighth consecutive month of negative readings, while industrial production extended its downtrend in October (-2.8%), a setback that was almost a full percentage point greater than the previous month’s contraction and a thirteenth consecutive month of declining output. Manufacturing slipped further into negative ranges under the weight of an 8.8% reduction in vehicle manufacture, the first such negative result for that industry in 18 months. That setback contributed to a broader contraction of factory output for the first time in seven months while construction and mining recorded another month of falling production.

Looking ahead, we at GEA expect industrial results to remain unfavorable for the remainder of the year, including a 2.4% annual decline in industrial activity during the fourth quarter. We also estimate that GDP will contract 0.3% during the quarter, leading the Mexican economy to slip 0.1% on average for the full year. On a related note, just this past week, the United Nations’ Economic Commission on Latin America and the Caribbean (Eclac) lowered its GDP growth forecast for Mexico to zero for the current year while reaffirming its 1.3% growth estimate for 2020. And Banco de México’s latest survey of public sector economists showed consensus estimates of 0.03% GDP growth for 2019 (down from 0.04% the previous months), and 1.10% growth for 2020 as opposed to 1.08% in the previous poll.

Fortunately, recent weeks have also produced a series of developments that offer some hope on key fronts. The National Private Sector Infrastructure Investment Agreement announced in late November may suffer from major flaws and will not deliver anywhere enough impetus to shake off the weakness of recent months and years. However, along with what is emanating from expectations that the USMCA will soon replace Nafta, it does generate positive buzz.

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