Mexican Economy Contracts for Third Trimester in a Row

Photo: Business Standard


Despite repeated promises from President Andrés Manuel López Obrador (AMLO) of a 6-percent economic growth in 2021, Mexico registered a 0.2 percent contraction last quarter, marking three straight trimesters in a row of decline in the nation’s gross domestic product (GDP), according to statistics provided Wednesday, Jan. 19, by the National Institute of Statistics and Geography (Inegi).

According to preliminary data from the Inegi, the Mexican economy registered a drop of close to 0.5 percent during the fourth quarter of last year, adding to the previous last two quarters of economic stagnation and raising the possibility of a full recession, according to analysts.

At an annual rate, the Inegi’s Timely Indicator of Economic Activity (IOAE) pointed to an annual drop of 0.24 percent in economic activity, its biggest decline since February 2021.

“The INEGI has released its estimates of economic activity for November and December through its IOAE. The news is disconcerting,” said Central Bank of Mexico (Banxico) Deputy Governor Jonathan Heath on his Twitter account Wednesday.

He added that if the IOAE estimates for the last two months of the year are correct and there are no revisions in the previous months, a 0.5 percent drop can be expected in the fourth quarter, compared to the previous one.

“Regardless of pending revisions, we should anticipate a GDP growth rate (set to be released by the Inegi on Monday, Jan. 31) close to 5 percent, either slightly above or slightly below,” he said.

For Gabriela Siller, director of analysis at Banco Base, the IOAE figures point to a possible recession.

“Taking into account the data from the IOAE, it is very likely that the GDP for the fourth quarter contracted compared to the third quarter (which also showed a fall). This implies a possible recession,” she said, warning  that “the scenario of stagflation (economic stagnation and high inflation) in Mexico is increasingly evident.”

“The IOAE publication for the months of November and December points to a marked slowdown in Mexico’s economic activity at the end of 2021,” said former INEGI President Julio Santaella.

He said that if the IOAE forecast is confirmed, the GDP for the fourth quarter of 2021 would have its third quarterly contraction, falling 0.5 percent.

Meanwhile, Banorte analysts estimated that the figures point to full-year growth of 4.7 percent, below the current consensus of 5.5 percent and its forecast of 5.7 percent.

“If correct, this would point to a more challenging environment than anticipated, with factors such as supply problems, price increases and uncertainty about the pandemic weighing heavily on economic dynamism,” Banorte reported.

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