Mexico Closer to Recession After Surprise Economic Contraction

(Bloomberg) -- Mexico’s economy unexpectedly contracted in October amid declines in services and primary activities, putting Latin America’s second-largest nation closer to a recession.

Economic activity dropped 0.2% from the previous month, compared with a median 0.5% growth estimate in a Bloomberg survey, Mexico’s statistics institute said on Friday. On an annual basis, the economy contracted almost 0.7%, worse than an expected 1% expansion.

The result signals that the Mexican economy remains stalled after posting a gross domestic product contraction in the third quarter, increasing the risk of recession in the final part of the year. Inflation at its fastest pace in over two decades, supply chain constraints and a refusal by the administration of President Andres Manuel Lopez Obrador to provide any significant stimulus are all weighing on business activity.

“The economy still has room to grow, and we expect it to grow in coming quarters,” Alberto Ramos, chief economist for Latin America at Goldman Sachs Group Inc., wrote in a research note. “However, high and sticky inflation, rising interest rates, sluggish credit flows, and policy and regulatory noise add near-term downside risks to activity.”

Read More: MEXICO REACT: Inflation, Fed Bring Bigger Banxico Hikes

Primary activities declined 1.2% from September while the service sector dropped 0.5%, the statistics institute said. Secondary activities grew 0.6% during the period.

©2021 Bloomberg L.P.