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The Mexican economy is shrinking for the first time since the pandemic recovered | The mighty 790 KFGO

By Dave Graham

MEXICO CITY (Reuters) – Mexico’s economy contracted 0.2 percent in the third quarter from the previous three-month period, the first quarterly decline since the pandemic rebound, preliminary data from national statistics agency INEGI showed on Friday.

Service sector activity in the country was shaken by a resurgence of the coronavirus pandemic in the summer, while global supply chain disruptions weighed on the recovery in manufacturing, particularly in key sectors such as the automotive industry.

The seasonally adjusted decline in gross domestic product (GDP) for the July-September period was compared to a consensus forecast in a Reuters poll for 0.1% growth, following surprisingly weak data for August.

Nikhil Sanghani, an analyst at Capital Economics, said the latest numbers had left GDP 2.3% below pre-pandemic levels, despite suggesting August data could be revised upward, noting that the economy is “going in the right direction” by October.

“But the bigger picture is that recovery from here will still be difficult,” Sanghani said in a research note.

“The global shortage of components will hold back auto production in the short term, a slowdown in the US will curb external demand and domestic demand will remain subdued due to a lack of political support,” the statement said.

The sluggish performance of the economy could create a dilemma for Mexico’s central bank, which launched a series of rate hikes as inflation rose well above its 3% target. However, the board is split over whether to raise interest rates.

A breakdown of GDP numbers showed that the decline was led by the weakness of the tertiary sector, which includes services, which decreased by 0.6% compared to the second quarter.

Secondary jobs, which include manufacturing, rose 0.7%, while primary jobs such as agriculture, fishing and mining also rose 0.7%, the data showed.

The dip in growth is a setback for Mexico, which suffered an 8.5% economic slump during the pandemic last year, the biggest slump since the Great Depression of the 1930s.

The main blow came in the second quarter of 2020. Since then, Mexico has seen four consecutive quarterly growth periods, including a 1.5% increase in April-June.

Mexico’s Treasury Department said it was sticking to its forecast of 6.3% growth this year despite the performance of the economy in the third quarter.

Compared to the same quarter last year, the Mexican economy grew by 4.6 percent unadjusted, INEGI said.

The final GDP figures for the third quarter of the second largest economy in Latin America are due to be released on November 25th.

(Reporting by Dave Graham; Editing by David Holmes; Additional reporting by Rodrigo Campos)

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