The Mexican Recession that May Not Be

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It’s the end of July and figures are beginning to trickle in regarding the state of Mexico’s economy. The first one landed on Friday, July 26, from the National Institute of Geography and Statistics (Inegi), which is the nation’s foremost authority in gauging financial and industrial trends and the news is not good since the Gross Domestic Product growth in May was a dire 0.3 percent.

An array of forecasters is crying victory and “we told you so” because during the second quarter they predicted the economy was heading into a potentially catastrophic “technical recession,” which means it is there, but not quite yet.

To all this President Andrés Manuel López Obrador (AMLO) is picking what I want to describe as a “technical verbal brawl” with all the prophets of economic pessimism for Mexico. Literally every day, AMLO claims, we’re doing extremely well, using the Mexican word to describe wellness “requetebién.”

And he’s calling – to no avail, by the way – upon the scholars working for the international ratings companies and the leading banks to make a distinction between growth and development, since perhaps growth as we know it may be slackening, but development is going great, “requetebién.”

Three banks — Citibanamex, Santander and Banorte — issued forecast last week claiming Mexico is in a state of technical recession.

Nevertheless, at the same time, their analysts issued their second quarter (April, May and June) reports, and in the midst of this alleged gloomy crisis the economy is undergoing, Citibanamex showed a p percent growth with 6.5 billion pesos in profits; Santander grew 8.5 percent with a 5.6 billion-peso profit; and Banorte reported a hefty 21 percent growth, compared with the first quarter reaping a very handsome amount of 20.84 billion in profits.

Recession, bankers? Sure, for the economy, but not for the banks, all of which showed profits available only in a blossoming economy, but to the eye of many a Mexican, this is a blatantly biased stance since banks – and ratings companies, as well – do not like AMLO’s administrative philosophy.

This contradictory position really brings many doubts about as to what is going on in the Mexican economy. And surely there will be growth, since on Wednesday,  July 31, the nation’s central bank Banco de México (Banxico) will release its end-of-the-month set of figures and make a decision on what to do with the brutal 8.5 interest rate it is inflicting upon borrowers. Will Banxico dare reduce the interest rate? On the opposite side of the technical recession, inflation is actually going down in real terms.

Among all of the international brokerage houses issuing an opinion – namely J.P. Morgan, Goldman Sachs, Citibanamex, Banorte, Oxford Economics and Pantheon Macroeconomics — anticipating a recession, there is one that is not, and that’s Barclays, which according to daily El Economista, will not issue an opinion now to confirm a recession given the fact that its economic research is showing mixed reactions, particularly stemming out of the manufacturing sector growth, which might impede a contraction. In other words, wait, watch and see.

A key point AMLO has also made in his daily press conferences is that his economic policy is not being comprehended by what he calls “our adversaries.” Even if brokerage and ratings companies claim objectivity in gauging economic figures and trends, AMLO has said that there is ill intent behind their negative campaign to discredit him and his administration.

Among the things these finance “adversaries” seem not to comprehend is that AMLO represents a change in the ideological management of the economy, with an emphasis on cutting down government expenditures in order to lower the size of Mexico’s debt.

Also, AMLO has repeated on a daily basis that what his “adversaries” don’t care for at all is his attempt to dismantle 36 years of neoliberal economics imposed by the past six presidents, which AMLO tallies among the worst of econometrics trends, and that is the undeniable official figure that 54 percent of Mexicans live in poverty. That is an official Inegi figure from past administrations.

At least one organization, the International Monetary Fund (IMF), is listening to AMLO’s words, admitting that it “doesn’t understand the austerity” of what he is currently doing because it is so different than what was done for 36 consecutive years, with “dire results.” On Monday, July 29, the IMF announced that it is sending a delegation to Mexico exclusively to study the Pemex Business Plan presented by the administration last week, which, fairly or unfairly, has been badly bashed by brokerages and ratings houses alike. AMLO has claimed prejudice and the IMF is taking a second look at the president’s doings and undoings.

By the way, AMLO’s austerity economics program may be the very cause of the economic slowdown. It is no secret that he has cut back expenditures in all of the cabinet posts and that may be the source of the recessionary effect.

On the comic side, former President Vicente Fox has accused  AMLO of being a “cuenta chiles,” for not releasing a lot of government money into the economy. “Cuenta chiles” is a Mexican slang term – literally means a green chillie pepper counter – to denote AMLO as a cheapskate.

Fox may be right, but there is cash around to pay the myriad of debts left behind by the administration of former President Enrique Peña Nieto administration.

This for AMLO means being “requetebién.”

But for now, keep asking bankers if in their internal accounting there is any inkling of a recession.

They’d be lying if they said yes.






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