Home Business Three months into AMLO’s administration, Mexico enters its first recession since 1996

Three months into AMLO’s administration, Mexico enters its first recession since 1996

by sanmigueltimes
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MEXICO (El Financiero).- On Tuesday Feb. 26, data of the Gross Domestic Product from the end of 2018 was published. The economy grew 2 percent during the entire year, although in the last quarter, the annual growth rate was 1.7 percent compared to the same period.

In the Global Indicator of Economic Activity, which is a close approximation to a monthly Gross Domestic Product, the dynamics of the economy can be better understood. In October it was growing at 2 percent, in November at 1.8 percent, and during December, only at 0.2 percent.

This last figure is the result of a very strong primary sector, which grows almost 5 percent, an industry that reported a contraction of 2.5 percent in that month, and a service sector growing just 1.2 percent. The contraction of the industry was essentially due to the mining (which in more than 80 percent is the extraction of oil) had a fall of 8 percent, while construction contracted 3.9 percent, and electricity generation, 1.1 percent. In services, we can highlight a fall in tourism of 1.6 percent, and in government activities, of 3.8 percent. All of that in December after Lopez Obrador took over.

If you see a graph of the Global Indicator of Economic Activity, the fall is surprising. In previous years, the economy was moving faster and faster, starting with a growth of 1 percent per annum, at the end of 2017, pointing towards 3 percent, which seemed to be reached at the beginning of 2019. However, the trend breaks as of November, and by December it seems  heading towards negative figures.

The data for the first month of 2019 (to be published until the end of March) seem to confirm this bad new trend. Oil production, which is a good part of the mining gross domestic product, fell 15 percent in January, almost double what it had fallen during the last quarter of 2018. Construction, which depends on private investment as much as public, does not have better results, since neither the government nor the companies seem to be investing. Therefore, the industrial activity in January has behaved in a very similar way than December, that is, between 2 and 3 percent of contraction.

On the services side, retail sales in January seem to have been worse than in December. Antad and Walmart report almost zero percent growth in real terms, and car sales suffered a significant contraction. In tourism, the impact of fuel shortages may have made things worse. If we assume that these falls are offset by growth in the information media and financial system, which were the ones that grew, and the entire tertiary sector grows zero, the Global Indicator of Economic Activity in January will indicate a 0.5 percent annual decline. If they do not manage to compensate the aforementioned activities, the contraction of the economy will be around 1 percent.

It is difficult to imagine another behavior, because the contraction of investment, consumption and government spending is very evident. The only source of growth could be exports, but precisely manufacture stopped growing in December, and if we consider the strikes in differente parts of Mexico such as Tamaulipas and the latent problem in Michoacán, it is difficult that in January there will be a recovery.

There seems to be no doubt, we have entered the first recession originated in Mexico since 1996.

By Macario Schettino. El Finaciero
Twiter. macariomx

The San Miguel Times

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