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Mexico’s economy enters technical recession as GDP shrinks again | Business and Business News

Mexico’s economy shrank for a second straight quarter in the final three-month period of 2021, sending it into a technical recession and joining regional powerhouse Brazil, whose economy had slipped back into negative territory last year, according to official data released on Monday.

The gross domestic product (GDP) of Latin America’s second largest economy shrank a seasonally adjusted 0.1 percent in the fourth quarter compared to the previous three-month period, according to preliminary data from Mexico’s National Institute of Statistics and Geography (INEGI).

That topped expectations in a Reuters survey that GDP would contract by 0.3 percent in the fourth quarter after the economy contracted 0.4 percent in the third quarter.

Mexico’s Deputy Finance Minister Gabriel Yorio said Friday that talk of a “technical recession,” defined as two consecutive quarters of contraction, failed to take into account coronavirus-related economic volatility and global supply chain issues.

Yorio said global supply chain shortages, increased commodity prices and higher land and sea transportation costs are weighing on the economy.

“Mexico’s weak fourth-quarter results have entered a technical recession with Brazil, a hugely disappointing result that leaves Mexico’s real GDP a whopping 4 percent below its pre-COVID peak in mid-2019,” said Fiona Mackie, regional director for Latin America and the Caribbean at The Economist Intelligence Unit.

Brazil’s weakened economy risks sliding deeper into recession ahead of October’s presidential election this year, according to a Reuters news poll, as vote fears and steep interest rate hikes continue to weigh on growth.

Jonathan Heath, a board member at Mexico’s central bank and one of its most outspoken, jumped into the fray late last year about where Mexico’s economy stood.

“The idea that the economy is in recession because there have been two consecutive quarters of negative GDP is an oversimplification of what a recession is,” Heath said on Twitter.

“Having two consecutive quarters of negative GDP increases the likelihood of a recession, but that alone is not enough. A recession must meet three requirements: depth, duration and spread. For now, we’re just sticking to duration.”

The recovery remains sluggish

Moody’s Investors Service analyst Renzo Merino predicted that economic growth in 2022 would be lower than Mexican authorities are aiming for amid continued negative investment momentum.

“This situation could be repeated in the coming years and put additional pressure on household accounts in the years that remain [President Andres Manuel Lopez Obrador’s] six-year term, given the possibility of slower revenue development and growing rigidity in public spending,” Merino said.

Nikhil Sanghani, emerging markets economist at Capital Economics, was more cautiously optimistic.

“We doubt that Mexico will remain in recession much longer. Supply shortages appear to be easing, which should allow auto production to strengthen, while the burden of the outsourcing law on production will ease soon,” Sanghani said.

Sanghani forecasts the recovery to remain sluggish in the coming quarters but weighed down by a recent tightening of COVID-19 restrictions and tight fiscal policies.

Figures from INEGI showed that tertiary activity, which includes the service economy, fell a seasonally adjusted 0.7 percent in the fourth quarter from the previous three-month period.

The decline of “the labour-intensive tertiary sector [is] This reflects the impact of recently passed outsourcing legislation, which led to a sharp decline in business and corporate services,” Goldman Sachs economist Alberto Ramos said in a research note.

Primary activities, which include agriculture, fishing and mining, rose 0.3 percent, while secondary activities, which include manufacturing, grew 0.4 percent.

The economy grew 5 percent for all of 2021, the data showed, after contracting 8.5 percent in 2020 in Mexico’s worst recession since the Great Depression of the 1930s.

“The strong growth in 2021 is more a result of the arithmetic effect generated by the low base of comparison in 2020 and less of real growth from manufacturing capacity,” said Alfredo Coutino, head of Latin America analysis at Moody’s Analytics.

GDP grew 1.0 percent in the fourth quarter from the same period last year, the data showed.

INEGI will release final fourth quarter GDP data on February 25th.

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