The Week in Finance: Mexican Economy Contracts

The Mexican economy suffered a contraction for the first time in 10 years. However, not every state and industry suffered, Tlaxcala is the state that registered the highest growth rates, while Tabasco, where the Dos Bocas project is located, registered an 8 percent contraction. FMI believes that with USMCA’s ratification, the country could grow up to 1 percent. Also, the Coronavirus threatens to take a toll on global growth.

In case you missed it, this is what made the headlines over the week!

• According to data from INEGI, in 2019 the Mexican economy experienced a 0.1 percent contraction compared to 2018. The previous economic contraction was experienced in 2009, when the economy suffered a 5 percent fall. However, back then the economy was heavily impacted by the global economic crisis, unlike today when the economy suffered as a result of several public policy decisions.
• In addition to decisions such as NAIM’s cancellation that took a toll on investors certainty, SHCP reduced public expenditure in 0.1 percent. According to analysts, the lack of public investment also played a role in the lacking performance of the Mexican economy.
• Despite the fall in economic growth, not all sectors and states fared the same. Tlaxcala was the state that registered the highest growth, with an annual rate of 9.1 percent. Colima follows in terms of growth with a rate of 3.8 percent and Chihuahua with 3.1 percent. According to analysts, the growth registered in Tlaxcala was heavily boosted by foreign investment and stability. However, a total of 15 states registered negative performance, being Tabasco the one that registered the most pronounced fall. The state registered a GDP decrease of 8 percent, followed by Baja California Sur with a 4.7 percent fall. Mexico City and the State of Mexico, the two largest economies in the country, registered growth reductions accounting to 0.6 and 3 percent respectively.
• Industrial activities also experienced a 1.7 percent fall. However, truck manufacturers were experiencing, until October 2019, an 18 percent growth, while mining registered a 6.6 percent increase in operations. Commerce also registered positive numbers, e-commerce grew over 35 percent, while retail reached almost 2 percent.
• Despite optimism, analysts believe that the negative growth in 2019 will impact results in 2020. A recovery in US manufacturing could lead to a recovery in Mexican manufacturing but that will not be enough. Still, IMF says that USMCA’s ratification could boost growth in 2020 and help the economy reach the 1 percent threshold.
• For Carlos Salazar, President of the CCE, the economy will not grow until there are clear rules regarding investment in the country. For Salazar, the key element missing has been certainty for investors.
• Coronavirus threatens the performance of the global economy. International stock exchanges have registered falls and the Mexican peso is experiencing its second fall in the week because of concerns regarding the spread of the virus.