Mexican economy shows signs of stagnation

Mexico’s economic activity registered a contraction in July 2022, which points to its third record with losses, according to the National Institute of Statistics and Geography (Inegi).

According to the results of the new Timely Indicator of Economic Activity (IOAE), a monthly variation of the Global Indicator of Economic Activity (IGAE) is estimated with a decrease of 0.13 percent in the seventh month of the year.

The economy added its third consecutive month of contracting, in May at 0.19 percent and in June at 0.14 percent.

Thus, the general activity index would still be 0.63 percent below its pre-pandemic levels (February 2020).

By economic activity, a monthly contraction of 0.1 percent is estimated in tertiary activities (commerce, tourism, communications, among others), adding its third month with losses.

On the other hand, secondary activities (mining, construction, manufacturing, among others) are expected to show a 0.2 percent decline in July, their first drop after four months of increases.

Finally, for June 2022, an index level of 111.1 is estimated for the IGAE, 101.2 in secondary activities, and 115.8 in tertiary activities.

In its annual comparison, the economy is projected to present an advance of 1.5 percent; industrial activity, 2.7 percent, and the services sector, an increase of 0.8 percent.

Ernesto O’Farril, president of Grupo Bursamérica, pointed out that the data for June and July are a reflection of poor results both in trade, manufacturing, and the energy sector and weakness in the labor market, for which he pointed out that it is probable that the IGAE may be even lower.

“For the last part of the year, it is predictable that the economy will continue to slow down as a whole, due to a combination of factors such as the lack of investment that will affect the domestic market, and exports that will begin to slow down,” he added.

James Salazar, deputy director of economic analysis at CIBanco, pointed out that the negative results are due to high levels of inflation, the increase in interest rates, and the uncertainty of a possible recession in the US economy.

“If the IOAE data in July is consolidated, the loss of dynamism that began at the end of the first half of the year could materialize, all of this is related to high inflation, the rise in interest rates, and the concerns that we continue to observe in the US economy,” he added.

Gerardo Copca, director of MetAnálisis, assured that “the drop in economic activity is due to the increase in both consumer and producer prices, and that has practically infected all sectors, this would lead us to a slowdown”.

“In addition, this slowdown is the answer to what the Bank of Mexico (Banxico) is looking for by increasing interest rates so that inflation begins to fall.”

For Copca, the economic outlook looks very uncertain on the international side, which is unfavorable for Mexico, since it depends on the US economy, for which a recession is speculated, which would affect the performance of national exports.

“Today’s data crystallizes the panorama of uncertainty that prevails over the economy, because, despite the fact that the figures have been better than estimated, the change in trend in the last three months is quite evident and at the moment there are no visible catalysts. that allow us to anticipate something different in the short term”, assured Marcos Daniel Arias Novelo, an economic analyst at Monex.

“The effects of the restrictive monetary policy will dominate at the end of the year, which keeps on the table the probability of observing a scenario of consecutive contractions or stagnation. Thus, we will wait for more information on the third quarter to revise our projections, remembering that we expect growth of 1.4 percent in 2023 ″, he said.

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