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Mexico on the brink of recession

by Yucatan Times
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Citibanamex reduces its forecast of Mexican GDP for 2019: from 0.9% to 0.2%

The national economy will grow between 0.5% and 0.75% in 2019, according to the forecasts of the Employers Confederation of the Mexican Republic (Coparmex), in addition to the fact that as a result of the federal government’s decisions the country is on the brink of a recession.

Gustavo de Hoyos Walther, president of Coparmex said that the drop in investment is directly linked to the fragility of the rule of law, which has to do with physical and financial insecurity in the country. “The problem lies in legal uncertainty as a result of decisions that this administration has taken, which aggravates the lack of economic growth and puts us at one inch of a recession.”

Gustavo A. De Hoyos Walther. National President of the Employers’ Confederation of the Mexican Republic

Mexico’s economy, the 2nd largest in Latin America, has hit a rough patch, weighed down by dwindling business confidence and an industrial slump.

But ahead of GDP data for the second quarter due on July 31, a debate has raged over whether all that gloom adds up to a recession.

Several banks say definitely yes – an assessment that could call into question the ability of President Andres Manuel Lopez Obrador’s eight-month-old government to deliver on his promises of development and improved fortunes for the country’s poor.

“We estimate GDP will also contract in the second quarter, putting Mexico in a technical recession, two consecutive quarters of negative growth,” Bank of America Merrill Lynch said in a client note in late June.

But AMLO’s government strongly disagrees.

“There has been a slowdown on a global level,” said Finance Minister Arturo Herrera in his first press conference earlier this month, after his predecessor abruptly resigned.

Arturo Herrera Secretario de Hacienda y Crédito Público (Photo: FORBES)

The economic slowdown has matched a broader, global trend, that has caused several other Latin American economies to slash growth forecasts. The region’s largest economy, Brazil, has also been teetering on the edge of a recession. It contracted in the first quarter of the year and figures suggest it barely recovered at all in the second.

It is not uncommon for Mexico’s economy to contract in one quarter over the previous three months – it has happened five times since 2009. The global financial crisis triggered by a U.S. housing meltdown was the last time Mexico was in recession, contracting for three quarters.

But the country’s sharpest decline in industrial output in a decade, a 2.1% drop in May, made economists wonder if this time was different.

Alfonso Ramirez Cuellar, a member of Lopez Obrador’s leftist National Regeneration Movement who chairs the budget committee in the lower house of Congress, said that instead of getting hung up over whether Mexico is technically in a recession, “we have to accept that the country’s economy is weakening and work from there.”

Mexico’s commitment to a 1% primary budget surplus makes a major fiscal stimulus unlikely, although the government could tap some rainy day funds.

Lopez Obrador’s reaction to the negative data so far has been to blame critics for adhering to a “neo-liberal” mindset, He argues that by redistributing wealth better his government is able to help economic development among the poor even with lower headline growth numbers.

“That is not a particularly strong argument. If the economy contracts you have less to distribute. (I have) never seen development in an economy that shrinks,” said Goldman Sachs’ head of Latin American research Alberto Ramos.

The Yucatan Times Newsroom

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