MEXICO CITY, July 29 (Reuters) - Mexico's manufacturing sector declined in July, with demand for the country's goods hit by inflation after a long pandemic-driven downturn, a survey showed on Friday, despite hopes for a recovery.
The seasonally adjusted S&P Global Mexico Manufacturing Purchasing Managers' Index (PMI) fell to 48.5 in July from 52.2 in June. Aside from a brief hiatus in May and June, Mexico's PMI has lingered below the 50-point threshold that separates growth from contraction since March 2020. It hit a record low of 35.0 in April 2020 during the initial enactment of the country's COVID-19 containment measures.
The data showed a July drop in factory orders and lower sales, with pressure from drought, input shortages and inflation.
The drop in manufacturing output also prompted a marginal drop in employment for the first time in four months.
"Companies are now reporting trepidation over their financials, a factor which restricted input buying and led to the non-renewal of temporary contracts," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
Business confidence also dropped, with almost one-quarter of those polled predicting output levels would continue to fall in the coming 12 months, De Lima added.
"Solvency concerns, alongside supply-chain constraints, the war in Ukraine and acute price pressures stifled business confidence in July."
Mexico's central bank announced a record interest rate increase last month if an effort to control inflation, with more hikes expected. (Reporting by Isabel Woodford; Editing by David Alire Garcia and William Mallard)