U.S. Markets closed

Mexico’s Flat GDP Puts AMLO’s Growth Pledge Further Out of Reach

Nacha Cattan

(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

Mexico’s gross domestic product was unchanged in the second quarter, narrowly dodging a recession and hurting President Andres Manuel Lopez Obrador’s promise to increase economic growth.

Gross domestic product growth was flat from the first three months of the year, worse than the median 0.1% estimate of economists surveyed by Bloomberg, according to final data published Friday by the country’s statistics institute. On an annual basis, Latin America’s second-biggest economy contracted a revised 0.8%, more than the initial -0.7% and the most since 2009. This report updates preliminary figures from July 31.

Even though Mexico didn’t dip into recession, growth for the whole year is falling far short of the average 4% annual pace pledged by Lopez Obrador, who’s known as AMLO. He’s promised to boost social spending, but also to end wastefulness in government that’s translated into budget cuts and a slowdown in public spending. Making good on his vow to halt the privatization of the energy sector has hurt investor confidence.

“The report confirms that the economy stagnated in the first half of the year,” said Juan Carlos Alderete, chief Mexico economist for Grupo Financiero Banorte. “High uncertainty, both domestic and external, weighs on activity, along with a series of shocks that also impacted dynamism.”

Read more: AMLO Says He’d Like Mexico to Cut Interest Rates to Boost Growth

The central bank cut interest rates for the first time in five years last week as inflation eases and 2019 growth projections sit at a decade low 0.6%, according to a Citi poll. On Thursday, the Inegi statistics agency reported that consumer prices in early August fell -- surprising all analysts surveyed by Bloomberg, increasing the odds of a central bank rate cut in September, which economists already predict.

Service sectors including commercial activity, transportation, financial and media grew 0.2% from the previous three months, according to the statistics institute. Industrial sectors including mining, construction and manufacturing were revised downward to a 0.2% contraction from no growth in the preliminary data. Agriculture, livestock and fishing industries contracted 3.4%.

In the annual GDP figure, services were revised downward to flat from 0.1%. That confirms “that domestic demand has been cooling off significantly,” Alderete said.

Earlier this month, data showed June industrial output fell 2.9% from a year earlier, more than analysts had expected and leading some to say the final figure would be worse than the preliminary number. Before the final GDP figure was published, seven of 15 economists in a Bloomberg survey had predicted the downward revision, three of them expecting a contraction.

Mexico’s economy unexpectedly contracted in the first quarter from the end of 2018 amid shrinking services activity and falling output at Petroleos Mexicanos.

--With assistance from Rafael Gayol.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, ;Walter Brandimarte at wbrandimarte@bloomberg.net, Robert Jameson, Matthew Malinowski

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.