Mexico data confirm 0.1% economic contraction in 2019

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MEXICO CITY (AP) — Mexico’s economy entered a recession and contracted 0.1% in 2019, the first year of President Andrés Manuel López Obrador’s six-year term, according to fourth-quarter government figures reported Tuesday that confirmed preliminary data from last month.

Moody’s Analytics analyst Alfredo Coutiño wrote in a report that economic activity steadily declined over four consecutive quarters last year, qualifying for the technical definition of a recession — “certainly a moderate contraction, but in the end it is a recession.”

Mexico’s economy typically decelerates in the first year of a political transition, Coutiño wrote, but last year’s performance was lower than what was seen in the inaugural years of López Obrador’s previous two predecessors.

It was also well short of initial forecasts that Mexico’s economy would grow 2% last year.

Analysts say policies such as the cancellation of infrastructure projects — like a partially built new airport for the capital that the president is replacing by converting a military base to the north — and revision of energy contracts have spurred investor uncertainty and reticence. And a government austerity program pushed by the famously fiscally ascetic López Obrador hurt consumer spending and slowed the economy as well, according to Coutiño.

Budget normalization and the beginning of a national infrastructure program should pull Mexico out of recession in 2020 and to modest growth around 1%, he added, but “investment will not accelerate until the government implements measures to restore confidence and credibility.”

Economist Jonathan Heath argued that despite the four consecutive quarters of negative growth, it’s not correct to think of Mexico as having slipped into recession because it isn’t significantly deep or generalized, since some sectors continued to show positive growth.

“A rate of -0.1% is not statistically different from zero,” Heath tweeted.

The 2019 recession represented Mexico’s worst annual growth performance in 10 years, according to Citibanamex, which blamed it primarily on a contraction in industrial production and a deceleration in the services sector.

Citibanamex said in a report that Mexico’s industrial sector contracted 1.2% in the fourth quarter of 2019, its seventh straight drop, while services expanded just 0.2% during the quarter.

Citibanamex, too, forecast 1% growth for 2020.

“We continue to be especially concerned by the weakness in industrial production,” the bank said. “Nonetheless, our projections imply a modest recovery for economic activity from (the first quarter of 2020) and going forward, propelled by a moderate growth in exports, a gradual recovery in consumption and a stabilization of investment.”

López Obrador has maintained that Mexico’s economy is solid and rejects criticism of his policies. He touts projects such as a planned “Mayan train” railway through southeastern states that he says will lift up some of Mexico’s poorest communities. López Obrador has also pushed social programs especially for the young, elderly and indigenous, and an ambitious tree-planting program, and their benefit to individual and family economies.

Earlier this month, Mexico’s central bank lowered its benchmark interest rate by a quarter-point to 7%, seeking to stimulate the sluggish economy and in response to global uncertainty including the effects of the COVID-19 disease outbreak.

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