Mexico economy in a technical recession with declining GDP

Metals and Mining Review | Thursday, July 29, 2021

Mexico's economy contracted for a second straight quarter in the last three-month period of 2021, putting it in a technical recession and joining regional powerhouse Brazil

FREMONT, CA: According to preliminary figures released by Mexico's INEGI national statistics office, the fourth quarter GDP of Latin America's second-largest economy fell by 0.1percent from the previous three-month period. A Reuters poll was expecting GDP to decrease by 0.3percent in the fourth quarter, after falling by 0.4percent in the third quarter.

Mexico’s deputy finance minister remarked that discussion of a "technical recession," defined as two consecutive quarters of decline, ignores coronavirus-related economic volatility and global supply chain concerns. The economy is being deeply affected by global supply constraints, rising raw material prices, and rising ground transportation and marine shipping expenses.

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According to a Reuters poll, Brazil's fragile economy is in danger of slipping deeper into recession this year, ahead of the presidential election in October, as voter concern and high-interest rate hikes continue to stifle growth.  The notion that the economy is in a recession because it has had two quarters of negative GDP is a simplification of what a recession is. Experts are of the opinion that a recession is more likely if there are two-quarters of negative GDP in a succession, but it isn't enough by itself. A recession must meet three criteria: its depth, duration and spread. And for the time being, it is simply bound by duration.

Given the continued negative trend in investment, Moody's Investors Service analyst Renzo Merino forecasted that economic growth in 2022 would be lower than the Mexican government's target. Considering the prospect of worse revenue performance and rising rigidity in public expenditure, this situation could repeat again in the coming years, putting extra strain on fiscal accounts for the balance of the six-year term.

According to INEGI data, tertiary activities, which make up the service economy, shrank by 0.7 percent in seasonally adjusted terms in the fourth quarter compared to the previous three-month period.

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