Economy contracted 0.5% in November; its biggest drop in 15 months

The Mexican economy registered its biggest contraction in 15 months in November, according to data released by the National Institute of Statistics and Geography (Inegi).

In the penultimate month of 2022, the Global Indicator of Economic Activity (IGAE) – which monitors the economy monthly – showed a contraction of 0.5%, with seasonally adjusted figures.

Thus, the Mexican economy registered its second fall of 2022, and the largest contraction for an August since 2021, when it was 1.5 percent. The result is weaker than the estimate given by the Timely Indicator of Economic Activity (IOAE) for November, of -0.1 percent.

“The outlook for the Mexican economy deteriorates rapidly, since in November the IGAE presented its worst result in 15 months with a variation of -0.45% compared to October. If we add to this the expectation of a similar deterioration at the end of the year, it is very probable that the flows of economic activity have closed below the levels of 2018, which represents a significant setback for the recovery process,” said Marcos Daniel. Arias, Monex analyst.

In this sense, Alejandro Saldaña, deputy director of Economic Analysis at Ve por Más (Bx+) explained that with the November data the economy would be 0.7% below its pre-pandemic levels.

In this way, a slowdown in economic activity towards the final stretch of last year would be confirmed, amid fears of a recession in the United States that would inevitably hit Mexico this year.

Today’s data is bad news for the local economic situation, since the notion of resilience that the Mexican productive apparatus had enjoyed for a large part of the year is beginning to collapse,” added Arias.

In annual comparison, the economy grew 3.5% in November.

Good End did not save the services

Despite the season of discounts and offers known as El Buen Fin, in November the tertiary sector reported a second consecutive contraction, which explained the drop in the IGAE.

The Inegi data showed that in the penultimate month services contracted 0.9% per month, which was mainly explained by setbacks in wholesale and retail trade, as well as by a dilution of the effect of economic reopening after the pandemic, analysts explained.

Broken down, wholesale trade services contracted 1.4% monthly, while retail trade contracted 1.1 percent.

“In total, six of the nine categories of tertiary activities fell, which suggests a significant wear in business and consumer spending given the high inflation that has lasted for months and the greater uncertainty that looms on the horizon,” said Marcos Daniel Arias.

The other services that showed deterioration were temporary accommodation services and preparation of food and beverages, with -1.8%; professional services (-0.8%); transport, mail and storage and information in the mass media (-0.6%); as well as financial services with -0.1 percent.

Primary sector rebounded

At the other extreme, the primary sector, which includes activities related to agriculture, livestock, fishing, hunting and the like, showed a rebound, after contracting 2.7% per month in October. In November the agricultural sector grew at a rate of 5.3 percent.

“It recovered from the previous setback and marked its largest expansion since March 2022, in line with the growth in exports of the sector. It is the only branch above pre-pandemic levels,” said Alejandro Saldaña.

stagnant industry

As for the secondary sector, where the industries are located, it remained unchanged during the eleventh month of the year.

“It stagnated and was 0.6% below pre-Covid levels. The rise in construction and public services was eclipsed by the decline in mining and manufacturing, which could have suffered from the lesser dynamism in non-oil exports and obstructions in supply chains due to the tightening of Covid measures in China,” stressed the Bx+ analyst.

Both mining and manufacturing industries showed a monthly contraction of 0.5% in the penultimate month of last year.

On the contrary, the construction sector showed a growth of 0.7%, while the generation, transmission and distribution of energy, water and gas grew 0.4 percent.

In the range

Analysts expect GDP in 2022 to be 2.8%

The data will be known next week, and will be key to moderating fears of a recession

Even with the contraction of the economy in November, and the expectation of a negative rate in December, analysts expect the Gross Domestic Product (GDP) to surprise positively and manage to grow in line with the expectations of the federal government.

According to the latest projection of the Ministry of Finance and Public Credit (SHCP), the punctual growth of the GDP would be 2.4%, with a growth range between 1.9 and 2.9%, although in the General Criteria of Economic Policy 2022 it was proposed a GDP of 4.1%, which was modified throughout the year.

Said projection was branded as optimistic as it was presented in the midst of a situation where high levels of inflation, as well as the increase in interest rates, began to affect the population.

The chances that GDP has grown 3.0% are now quite limited and, instead, we expect a variation of 2.80% in all of 2022. The data will be released next week and will be key to moderating fears that there is a recession. at the door or to revive them if there is a major disappointment,” said Marcos Daniel Arias, an analyst at Monex.

According to the Timely Indicator of Economic Activity (IOAE) in December the drop in the economy would have been 0.4% compared to the previous month, which would put two consecutive months down.

In this sense, Banorte strategists pointed out that the economy would have a moderate advance in the fourth quarter of 2022, this derived from lower external demand, which has mainly affected manufacturing, as well as a certain local slowdown, which is observed in the sector. of services.

“However, we believe that the economy will remain resilient, supported by solid fundamentals and expectations of greater investment flows going forward,” they added.

ana.martinez@eleconomista.mx