Mexican economy shrinks in first quarter, economists downgrade outlook

Reuters . Mexico City | Published: 00:00, May 26,2019

 
 

Mexico’s president Andres Manuel Lopez Obrador attends a news conference, at the National Palace in Mexico City, Mexico, May 21, 2019. — Reuters photo

Mexico’s economy shrank in the first quarter of 2019 from the previous three-month period, data showed on Friday, dealing a blow to the new government’s drive to convince investors it can boost growth in Latin America’s second-largest economy.
President Andres Manuel Lopez Obrador took office in December pledging to ramp up lacklustre growth and job creation.
But the economy shrank 0.2 per cent compared with the October-December period as services and industrial activity dipped, the first contraction since the second quarter of 2018, according to data from national statistics agency INEGI. The contraction was particularly sharp in March.
‘March was a very bad month for economic activity, clocking a 0.6 per cent contraction,’ Mexican central bank board member Jonathan Heath said on Twitter, citing monthly economic activity data also published on Friday.
Goldman Sachs economist Alberto Ramos said strikes and fuel supply disruptions earlier in the year had contributed to the slump.
After the data was published, Mexico’s benchmark stock index fell more than 1 per cent to a two-month low, the peso currency dipped into negative territory, and economic research consultancy Capital Economics cut its Mexican growth forecast to 1.8 per cent for 2019.
‘The weak Q1 GDP figure means the economy won’t, barring a major surprise, grow by the 2.5 per cent that we had projected ... The next few years will be underwhelming for Mexico’s economy,’ said William Jackson, chief emerging markets economist at Capital Economics.
Lopez Obrador brushed aside concerns about the data at his daily morning press conference.
‘Investment is growing, I said it yesterday, our currency is strong, it is appreciating more than other currencies around the globe and inflation is stable. And there will be growth, much more growth. So we’re going to wait,’ said Lopez Obrador.
Mexico received some $10 billion in foreign direct investment in the first quarter, up 7 per cent from the same quarter last year, and inflation was slightly lower than expected in the first half of May at 4.43 per cent.
The peso has appreciated over 6 per cent since Lopez Obrador took office.
Still, some of the president’s decisions have rattled investors, prompting concern among private sector analysts.
The International Monetary Fund on April 9 lowered Mexico’s 2019 growth outlook to 1.6 per cent from 2.1 per cent, citing shifts in perception about policy.
In a note, Goldman Sachs’ Ramos said high interest rates would weigh on consumer spending, adding that the investment outlook was lacklustre, partly due to uncertainty over the ratification of a new trade deal with Mexico’s top export market the United States.
The US economy expanded 3.2 per cent in the first quarter in annual terms, but some economists believe that growth rate will be short lived, bringing more gloom to Mexico.
‘The projected deceleration of the US economy may also weaken the thrust to activity from exports and foreign direct investment,’ Ramos said.
In annual terms, Mexico’s economy expanded just 1.2 per cent, slightly lower than the 1.3 per cent growth preliminary data published last month showed. It was the weakest quarterly annual growth in a year.

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