Mexican economy stagnates in second quarter, weaker than earlier estimated

MEXICO CITY (Reuters) - Mexican gross domestic product was unchanged in the second quarter from the preceding three months, slightly weaker than a preliminary estimate published last month, data from the national statistics agency INEGI showed on Friday.

FILE PHOTO: A shopper counts banknotes while paying a TV during the kick-off of the 'El Buen Fin' (The Good Weekend) holiday shopping season, at a Walmart store in Monterrey, Mexico, November 17, 2017. REUTERS/Daniel Becerril

The figures showed the Mexican economy was even closer to entering a recession in the first half of 2019 than previously anticipated, underlining the economic challenge facing President Andres Manuel Lopez Obrador.

“We’re concerned about growth, but we’re more concerned about development. Growth is creating wealth and development is creating wealth and distributing that wealth,” Lopez Obrador said at his daily news briefing when asked about the data.

“Now there is growth and better income distribution, people have more purchasing power, most Mexicans. That’s why I’m not very concerned about the matter,” he added.

The provisional INEGI estimate on July 31 had shown the economy expanding by 0.1% during the April-June period.

Gross domestic product (GDP) figures for the first quarter were also revised down by a tenth of a percentage point to show the economy contracted 0.3% compared with the final quarter of 2018.

“This confirms the economic stagnation in Mexico during the first half of 2019,” said James Salazar, an analyst at CI Banco.

A technical recession is generally defined as two consecutive quarters of economic contraction.

“Growth rates are so low and there are so many domestic and external risks that growth can turn negative at any time,” said Salazar.

The final GDP figures for the period make it less likely the economy will grow by 2% this year as Lopez Obrador has hoped. Still, asked about that estimate, he said he would maintain his forecast.

Alberto Ramos, head of Latin American research at Goldman Sachs in New York, said, “we expect real GDP growth to downshift to just 0.6% in 2019, from 2.0% in 2018 and the 2.7% 2011-2018 average.”

News of the stagnation will likely lend weight to forecasts that the Mexican central bank could cut its benchmark lending rate for a second time in succession when its board makes its next monetary policy decision near the end of September.

Central Bank Governor Alejandro Diaz de Leon earlier this week flagged his concern about the growth outlook, and the case for a rate cut was bolstered by data on Thursday showing that inflation slowed more than expected in early August.

Some of the decisions made by Lopez Obrador, a leftist exponent of economic nationalism, have shaken investor confidence in Mexico, dampening hopes for growth.

Lopez Obrador took office in December vowing to reduce chronic inequality and deliver average annual growth of 4%.

Compared to the same quarter a year earlier, Mexico’s economy, Latin America’s second largest, contracted by 0.8% in unadjusted terms during the April-June period.

Separate data from INEGI showed that the economy grew by 0.2% in June from the previous month.

Reporting by Anthony Esposito, Dave Graham and Sharay Angulo; Editing by Bernadette Baum