Mexican manufacturing shrinks for third straight month to lowest since 2011

Activity in Mexico’s manufacturing sector shrank for a third consecutive month in August, a survey showed on Monday, as weakening domestic demand and subdued business sentiment weighed on Latin America’s second-largest economy.

The IHS Markit Mexico Manufacturing Purchasing Managers’ Index MXPMIM=ECI stood at 49.0 in August, sliding to the lowest reading in the survey’s nearly 8-1/2 year history and down from 49.8 in July.

A figure above 50 signals expansion in the sector, while a reading below that threshold points to contraction.

The manufacturing sector has contracted six times in the last 12 months.

“The latest PMI figure highlighted the fastest deterioration in the health of the sector since data collection started in April 2011, a worrying sign after (recent GDP data) indicated the economy narrowly avoided entering a technical recession in the second quarter,” said IHS Markit economist Pollyanna De Lima, who wrote the report.

Mexico’s economy posted no growth in the second quarter, edging uncomfortably close to a recession, and underlining the economic challenge facing President Andres Manuel Lopez Obrador who took office in December.

Business sentiment improved marginally in August after hitting a series low in July, the survey showed.

Some of the decisions made by Lopez Obrador, a leftist proponent of economic nationalism, have shaken investor confidence in Mexico, dampening hopes for growth.

Mexico’s central bank underscored that on Thursday saying the environment of uncertainty affecting private investment has “stemmed from the public policy decisions taken by the new administration and by concerns over insecurity and corruption.”

Confidence in Mexico also was rattled at the end of May when President Donald Trump threatened to impose tariffs on all Mexican imports to the United States if Mexico did not curb the flow of U.S.-bound migrants. A deal temporarily averting the tariffs was reached in June.

“Panelists linked lower sales to weak demand, tough market conditions and problems in the automotive sector. Underlying data suggested that the fall in order books was centered on the domestic market, as new export work increased for the first time in three months,” the report said.

Mexico sends about 80% of its exports, much of which are manufactured goods like cars and televisions, to the United States.

The PMI index is composed of five sub-indexes tracking changes in new orders, output, employment, suppliers’ delivery times and stocks of raw materials.