The economy contracted 0.58% in July compared to the same month of 2018, the biggest year-over-year decline since November 2009.

Seasonally adjusted data from the statistics agency Inegi shows that negative growth in the construction and mining sectors put a heavy burden on the economy in the first month of the third quarter.

Activity in the former declined by 9.1% – the industry’s worst performance in 18 years – while the mining sector, which hasn’t recorded any growth since 2013, contracted by 7.39%.

The industrial sector as a whole recorded negative growth of 2.76% in July compared to the same month a year earlier.

The weak construction sector activity is the result of lower investment in public infrastructure, delays to the start of the government’s signature projects such as the Santa Lucía airport and the postponement or cancellation of private sector works due to economic uncertainty.

Eduardo Ramírez, president of the Mexican Chamber of the Construction Industry, said last week that the situation is causing “great despair” among builders and construction companies.

The service sector, the engine room of Mexico’s economy, grew in July but only by 0.25% – the worst result in four months. The manufacturing industry fared better, recording 1.15% growth, which was an improvement on both May and June.

Inegi’s Global Indicator of Economic Activity (IGAE) report also shows that the economy contracted 0.1% in July compared to the month before.

“In our opinion, the report shows that economic activity at the start of the third quarter remained stagnant,” Banorte analysts said, adding that the economic environment remains challenging but there are some signs that activity could pick up.

July’s contraction followed 0.0% growth in the second quarter of the year and a 0.3% decline in the first quarter.

Alfonso Esparza, senior analyst at foreign exchange company Oanda, said the IGAE data “validates the decision of the Bank of México to cut [interest rates].”

The central bank cut rates in August for the first time in five years, citing slowing economic growth and lower inflation.

With inflation levels at a three-year low and economic activity continuing to stagnate, many analysts believe that the Bank of México will announce an additional interest rate cut on Thursday. The rate currently stands at 8%, five points higher than inflation.

Source: El Economista (sp), El Financiero (sp)