The economy grew by just 0.1% in the third quarter compared to the previous three-month period, according to preliminary data published Wednesday by the federal statistics agency Inegi.

The year-over-year figure was even worse: Mexico’s GDP shrank 0.4% in the July to September period compared to the third quarter of 2018.

It is the first time since the fourth quarter of 2009 that year-over-year economic data has shown a contraction.

The minuscule growth in the third quarter was 0.1% below the average forecast of analysts consulted by the news agency Bloomberg, and follows an economic contraction of 0.3% in the first quarter of 2019 and 0.0% growth in the second.

The primary sector, including agriculture, expanded 3.5% between July and September compared to the previous quarter but the industrial sector declined 0.1% and service sector activity was unchanged.

The economic contraction on an annual basis was due to a 1.8% decline in industrial activity and zero growth in the service industry. In the first two quarters of the year, the economy grew on an annual basis by 0.1% and 0.3% respectively.

The weak performance of the Mexican economy has led international organizations to downgrade repeatedly their 2019 growth forecasts.

The International Monetary Fund cut its outlook to 0.4% this month from 0.9% while the World Bank slashed its forecast to 0.6% from 1.7%.

The United Nations Economic Commission for Latin America and the Caribbean this week reduced its growth prediction to just 0.2% from a previous forecast of 1%.

The Finance Secretariat and Bank of México have also cut their outlook for 2019 growth. The former sees an economic expansion in the range of 0.6% to 1.2% while the latter is predicting growth between 0.2% and 0.7%.

The weak economy is putting the brakes on job creation. Growth in job numbers on an annual basis has fallen to 1.9% from about 4% at the start of this year.

“The decline in the pace of job creation prompts consumers to act with a lot of caution,” economist Enrique Quintana wrote in a column for the newspaper El Financiero. “A lot of people see their employment with uncertainty and prefer not to fall into debt.”

Quintana said that economic stagnation will also create tax revenue problems for the federal government.

“Public revenue assumptions are calculated based on GDP growth of 2%. Secretariat of Finance models establish that for every percentage point of decline or gain in growth, there is a direct impact of about 35 billion pesos in [tax] collection,” he wrote.

If the economy declines, Quintana added, there is an increased possibility that ratings agencies will downgrade the credit rating of both the state oil company Pemex and Mexico.

Source: El Financiero (sp)