Saturday, May 25, 2024

Mexico in technical recession; ‘economy at a standstill’

The Mexican economy has entered a technical recession after two consecutive quarters of contraction, despite annual growth of 5% in 2021.

The national statistics agency INEGI announced that from October through December, the economy contracted 0.1%, following a 0.4% decline in the previous quarter.

The agency said the main contributor to the decline was a fall in activity in the services sector, which contracted 0.7%. Meanwhile, the agriculture sector grew 0.3% and the industrial sector grew 0.4%.

Production linked to outsourced work has also fallen 30% since August, the newspaper El Economista reported. Outsourced work was heavily restricted by the labor reform which was approved by Congress last April.

Nikhil Sanghani, an economist at the consultancy Capital Economics, said the news meant a less bright 2022.

“The decline … of Mexico’s quarter-on-quarter Gross Domestic Product (GDP) in the fourth quarter confirmed that the economy went into recession during the second half of 2021, and we believe that this year’s growth will be weaker than most expected,” he said.

However, last week Deputy Finance Minister Gabriel Yorio rejected that the country was in a period of recession or stagflation — a period of economic stagnation and inflation — because the effects of the pandemic hadn’t been considered.

Bank of México deputy governor Jonathan Heath also cast doubt on whether the economy was in a true recession or just at a standstill. “In no way can it be said that we have a generalized fall in all sectors, which would correspond to the classic definition of a recession,” he said.

Heath added that determining whether the country was in recession depended on the duration and depth of the contraction and how widespread its economic effects were.

Recession or not, a financial analyst at Banco BASE, Gabriela Siller, said the outlook was pessimistic. “Families face something they have not seen since the 1980s: a very negative scenario where there is almost no job creation and high inflation,” she said.

Siller added that the interpretation of whether or not Mexico has entered a recession should be left to the independent work group under the Mexican Institute of Executive Finance (IMEF), which has yet to state its position. Heath sits on that group.

The International Monetary Fund (IMF) has forecast that Mexico’s economy will grow 2.8% this year, while other analysts have predicted 2.7%.

The 5% overall growth in 2021 followed an 8.4% contraction in 2020, while inflation in 2021 soared to 7.36%, the highest level in 21 years.

With reports from El Sol de México, The Independent and El Economista 

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