Mexico Recession Risk Flashes as Economy Shrinks for Second Straight Month
Mexico Recession Risk Flashes as Economy Shrinks for Second Straight Month
(Bloomberg) -- Mexico’s economy contracted for a second consecutive month amid signs that it’s teetering on the edge of recession.
The nation’s IGAE economic indicator, a proxy for gross domestic product, fell 0.4% in May from a year earlier, the nation’s statistics institute reported Friday. That compares with a -0.8% median forecast from economists and follows a revised 1.5% annual decline in April. The indicator slipped 0.03% in the monthly comparison.
It’s the first time the economy has shrunk in two straight months since the 2009 financial crisis, and the data point to a contraction of 0.1% or 0.2% in the second quarter GDP figure scheduled to be released next Wednesday, according to Goldman Sachs Group Inc. The median forecast in a Bloomberg survey is for a 0.1% contraction.
That would technically indicate a recession as defined by two consecutive quarterly contractions after the economy shrank 0.2% in the first quarter.
“With the data we have so far, the most likely scenario is no growth or a small contraction” in the second quarter, Pedro Uriz, a strategist at BBVA, wrote in research report. “This scenario is broadly priced in by markets and supports Banxico cutting rates once the Fed starts an easing cycle, which may happen next week.”
Mexico’s central bank may cut borrowing costs from a decade-high 8.25% as soon as its next scheduled decision in August, given slowing inflation, signs of economic weakness and forecasts for a reduction by the Federal Reserve.
Read more: MEXICO INSIGHT: Inflation Constraints Should Abate, Bring Cuts
A separate report on Friday showed that Mexico’s trade surplus in June widened amid falling imports, a sign of weaker consumer demand. Mexico exported $2.56 billion more than it imported, a surplus that was wider than forecast by any economist surveyed by Bloomberg. Imports tumbled 7.8% from a year earlier, the most since 2016.
President Andres Manuel Lopez Obrador has slashed government spending and companies have put investment on hold, scared off by trade-war risks, the cancellation of a new $13 billion airport for Mexico City and a freeze of oil auctions. Industrial output has collapsed amid falling crude production, and consumer confidence has weakened for four months after initially jumping on optimism for the new government.
“The contraction in May adds evidence of economic activity falling due to headwinds on industrial production from uncertainty about trade, weak external demand and government economic policies,” said Felipe Hernandez, an economist with Bloomberg Economics. “With services losing momentum and lingering headwinds on industrial production, the data points to a contraction in the second quarter and additional weakness in the second half.”
--With assistance from 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, ;Walter Brandimarte at wbrandimarte@bloomberg.net, Robert Jameson, Matthew Malinowski
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