AMLO Dodges Recession But Growth Grinds to a Halt in Mexico

(Bloomberg) -- Mexico’s economy narrowly missed falling into recession in the second quarter, surprising most analysts, while posting growth well short of the pace pledged by President Andres Manuel Lopez Obrador.

Gross domestic product rose 0.1% from three months earlier, better than all but one forecast by economists in a Bloomberg survey, according to preliminary data published Wednesday by the country’s statistics institute. However, on an annual basis it contracted a more-than-expected 0.7%, the most since 2009. The final figures are due out Aug. 23.

Lopez Obrador won a landslide victory a year ago vowing a slew of social programs and government investment to boost growth to an average of 4% per year. But that’s running up against his other promise of a deep rupture with past economic policies. By slashing government budgets he sees as lavish and halting the privatization of the energy sector, he’s hurt investor confidence and slowed public spending to a crawl.

The peso extended its advance after the data, gaining 0.3% to 19.01 per dollar at 8:34 a.m. in New York.

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 flat. Agriculture, livestock and fishing industries contracted 3.4%.

“Services saved the day by expanding a bit,” said Marco Oviedo, chief Latin America economist for Barclays. “Real wages have improved. There are reasons to be less pessimistic. But in the end, we still expect the economy to remain on the weak side for a while.”

Mexico will grow 1.0% this year, the slowest since the 2009 recession, according to a Bloomberg survey published before today’s release. Oviedo is even more pessimistic, estimating growth of 0.5% for the full year.

What Our Economist Says

The economy avoided recession. Fuel shortages, transport disruptions and strikes were a drag in the first quarter, but abating headwinds from these provided some relief in the second and help explain the surprise. Results still point to weak economic activity and are unlikely to provide any significant relief. Risks are still to the downside.

--Felipe Hernandez, Latin America economist at Bloomberg Economics

The president, known as AMLO, told Bloomberg in an interview this week that Mexico’s measure of success based on economic growth is an outdated neoliberal concept. He also wants to take well-being into account and improve distribution of wealth. Mexico boosted the minimum wage soon after AMLO took power in December.

Lopez Obrador was quick to applaud the quarterly growth figure. At his daily morning press conference, he said it was really good news that shows Mexico can grow even with austerity, beating pessimistic forecasters who anticipated the country would fall into recession.

“The country is doing well,” he said, standing in front of a chart showing the results. “That doesn’t mean everything is resolved. There are problems we’re facing, but we’re doing very well with the economy and with well-being.”

His new finance minister, Arturo Herrera, who earlier this month had said Mexico was “very, very far” from entering recession, rolled out a $25 billion spending plan Monday to jump-start growth. Herrera replaced Carlos Urzua, who resigned in anger at AMLO administration policies.

“Industrial GDP was responsible for the favorable surprise by not falling in the second quarter,” Alonso Cervera, chief Latin America economist at Credit Suisse, wrote on Twitter. While a technical recession was avoided “there isn’t much to celebrate. The economy has been stagnant for almost a year.”

--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

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