Mexico’s Flat Economy Leaves Growth Far Short of AMLO’s Targets

(Bloomberg) --

Mexico’s economy not only remains far from the growth promised by President Andres Manuel Lopez Obrador -- it isn’t even close to keeping up with the disappointing rates of his predecessors.

Gross domestic product rose 0.1% in the third quarter from three months earlier, according to preliminary data published Wednesday by the country’s statistics institute. That’s less than a 0.2% median analyst forecast. On an annual basis, Mexico shrank 0.4%, also worse than economists’ forecasts.

Lopez Obrador has pledged to lift growth to 4%, but his decision to scrap a $13 billion airport project and Mexico City’s stepped up scrutiny of construction projects have pummeled the nation’s building industry. Amid tight fiscal policy and slow inflation, the central bank is stepping in with rate cuts, which are expected to continue in its next scheduled decision in two weeks.

The oil sector also remains a drag on growth after AMLO, as the leftist president is known, froze competitive oil auctions and farm-out tenders that enabled Petroleos Mexicanos to share the cost of developing oil fields with partners. That has dimmed the outlook for any significant rebound after 14 years of production declines.

Lopez Obrador’s growth target “is increasingly unlikely to be met, because of the results seen so far and what they show about the impact of the current economic policies on growth,” said Felipe Hernandez, an economist at Bloomberg Economics. “Policy needs to change, to focus more on attracting private investment.”

Mexico’s peso weakened 0.4% to 19.1971 per dollar in morning trading in New York.

Service activity was unchanged from the previous three months, according to the statistics institute, compared with a 0.2% advance in the previous quarter. Industrial activity including construction, oil output and manufacturing fell 0.1%. Primary activities including agriculture expanded 3.5%.

With inflation at the central bank’s 3% target, almost all analysts expect another quarter-point cut in the policy rate to 7.5% at the next scheduled decision on Nov. 14.

Economists have repeatedly cut their 2019 growth estimates since the start of the year, and now expect a 0.5% expansion, which would be the weakest since the 2009 global financial crisis.

Citigroup Inc. revised its 2019 growth estimate following the report, seeing a contraction of 0.1%, compared with a previous forecast of a 0.2% expansion.

While analysts expect growth to rebound to 1.3% next year, that would still be below the 2.4% average of the past two decades since the North American Free Trade Agreement with the U.S. and Canada went into effect, and far below the average of more than 5% for emerging economies.

The slump in construction can be seen in Cemex SAB, Mexico’s largest cement company. Its shares have tumbled to trade near the lowest level since a brush with default eight years ago as the industry slowdown weighs on its sales outlook. The Mexican stock market, as measured by the benchmark Mexbol index, fell to a five-year low in August, about 25% below its record in mid-2017.

--With assistance from Amy Stillman and Rafael Gayol.

To contact the reporter on this story: Eric Martin in Mexico City at emartin21@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Matthew Bristow, Walter Brandimarte

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