Economics: Mexican economy weak and still struggling to recover pre-pandemic levels

MEXICO - Report 18 Jan 2022 by Mauricio González and Francisco González

Economic indicators corresponding to 4Q21 that have been released in the past few weeks project a weakening of the economy. This is reflected in both important components of aggregate demand as well as in production and services indexes. The most recent results not only imply lower growth at the end of 2021, but in considering its causes, also anticipate a sluggishness at least during the first half of 2022.

Manufacturing production has lost its momentum, mainly due to the contraction in branches related to the automotive sector that face considerable obstacles in accessing inputs, while gross fixed capital formation maintains its downtrend, and consumption is not displaying a clear recovery. In considering the indicators, it should be noted that in November the industrial sector posted a 0.7% annual increase, while on average from January-November 2021 its growth clocked in at 7.1%.

Although economic activity has gradually normalized in the country, industry results in the past few months have not been favorable, even though this sector also continued to have a low comparison base. In November 2021 industry posted a 0.1% monthly decline, which brought its index to 98.3 points, below the average reached during the months prior to the pandemic (index=102.3 on average January 2019-February 2020). In the month in question, the manufacturing subsector, which represents the largest percentage share in industry, posted weak growth (only 1.2% in the month). At the same time, the electricity and construction subsectors experienced declines. Within the manufacturing sector, the decline in the transportation equipment branch, the fifth decrease in a row, was particularly significant.

Meanwhile, it was reported that in October both gross fixed capital formation and private consumption not only increased at a slower pace than in the previous six months, but also that their growth was far from offsetting the declines posted a year earlier. In investment, the poor performance of residential housing construction and imported transportation equipment were noteworthy. By the same token, in consumption, the domestic services component continued to be far from the levels posted in the pre-pandemic period.

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