Mexican economy grows 1.1pc in August from July, recovery slows

MEXICO CITY: Mexico's economy grew more slowly than expected in August from July as a recovery from the depths of the coronavirus pandemic lost steam, figures published by the national statistics agency (INEGI) showed on Monday.

Latin America's second-biggest economy grew 1.1% month-on-month in seasonally adjusted terms in August, undershooting a Reuters poll forecast for a 1.9% increase, the INEGI data showed.

The economy contracted 9.4% from August of 2019, INEGI said. That compared to the poll forecast for an 8.2% contraction.

A breakdown of the data showed that primary activities, such as farming, fishing and mining, fell by 5.9% from July, while secondary activities, including manufacturing, rose 3.3%, and tertiary activities, which cover the services sector, increased 0.4%.

Economists forecast Mexico's economy will in 2020 suffer its steepest recession since the Great Depression of the 1930s.

"With the July-August prints, the statistical carry-over for 3Q 2020 real GDP growth is at +11.7%, and for full-year 2020 average real growth is at -9.3%," Goldman Sachs economist Alberto Ramos said in a research note.

Mexico was already in a slight recession in 2019 before the pandemic began as domestic investment fell and policy decisions by President Andres Manuel Lopez Obrador caused concern in the business community.

According to Ramos, Mexico's policy response to the pandemic has been "underwhelming" compared with regional peers.

Ramos said the government's package was equivalent to between 1.0% and 1.5% of gross domestic product and consisted of "narrow-based and poorly targeted measures, with extremely limited support for the productive sector".

The weak fiscal policy response to the pandemic is likely to lead to a deeper contraction and a shallower recovery, he added.