Mexico
Mexican Economy Remains Stagnant, AMLO Delays his Infrastructure Plan
The economy fell 0.4% in August versus the previous year, with two months down in the second half of the year. Inflation remains at 3%.

By August, economic activities in Mexico were still showing no signs of recovery. President Andrés Manuel López Obrador is betting strongly on the implementation of an ambitious infrastructure plan which will reactivate the economy and which, he acknowledges, has been delayed.

On Thursday, the National Institute of Statistics and Geography (INEGI) released the Global Indicator of Economic Activity (IGAE) for August, confirming the stagnation: it showed a negative variation of 0.4% over the previous year and a slightly positive rise of 0.1% compared to July.

The index highlighted the performance of secondary activities - or industrial - to have the best performance among other sectors. The industrial sector had a positive variation of 0.8%, and the yearly indicator fell 1%. Still, the highest level in the last five months.

The outcome is explained by a slight recovery in the mining and construction sectors, while manufacturing dropped in both comparatives, a reflection of the industrial downturn in the U.S. and the strike at General Motors.

Unfortunately, better construction and mining performance does not generate enough peace of mind in the markets. Alejandro Saldaña, an analyst at Banco BX+, explains in a dialogue with LPO that there is not enough evidence that these slight improvements can be sustained.

It must be considered that the day before, INEGI also published a poll among construction companies. The lowest number since 2006, the year in which the survey began, with a drop of 10.2 percent.

How to explain this difference in the indicators? In the opinion of Jonathan Heath -Vicegovernor of the Bank of Mexico- it would reflect that what is growing is the informal construction sector. This is alarming, as this sector is the main component of productive investment. For his part, the director of IDIC, Jose Luis de la Cruz, emphasizes that more than a recovery, it is "a smaller fall".

For his part, Lopez Obrador evidence that he is aware of the need to reactivate this sector, although he admitted this morning, in his daily conference, that the administration has been delayed, he blamed it on "the obstacles they have faced".

The president also confirmed that they are already working on the Infrastructure Plan. As reported by LPO, last Tuesday the president gathered his cabinet to decide which projects will be part of the plan and which will have the support of private investment, although this time he did not summon any business personality. The Business Coordinating Council (CCE) as well as mogul Carlos Slim have made a strong promotion of the president's plan. Slim is seeking to position Grupo Carso in the main projects.

Although the president justified that this process "takes time", he stressed that some projects are already underway, such as roads in Oaxaca, or reconstruction projects after the 2017 earthquakes. In both cases, he reported that funds have already been released.

He also recalled the construction of the Dos Bocas refinery in Tabasco, and that they are awaiting basic engineering studies for the bidding of the Mayan Train in southern Mexico. "These will represent thousands of jobs," he said.

But the analysts question this wager. De la Cruz recalls that for the 2020 budget, the government's actual investment suffered a reduction of 5%. "No matter how much they reactivate, it will be limited, because it will have a smaller budget, so it will have a limit," he told LPO. De la Cruz is also concerned about resorting to imported supplies, as in the case of the energy sector.

For De la Cruz, the clearest example of how difficult it is "for the elephant to walk" is the airport, which only this month began the construction process.

"Yes, indeed, we have been very slow in getting the projects up and running because of all the obstacles we face. There was a lot of corruption, it was not about continuing with the same thing," López Obrador justified.

Inflation in line with Banxico

On the other hand, INEGI also released the National Consumer Price Index for the first half of October, showing that inflation is already positioned within the target of the Bank of Mexico (Banxico), as the annual rate stood at 3.01%.

As for its behavior in the biweekly comparative, the index showed a variation of 0.40 percent. Core inflation was at 0.13 percent and non-core at 0.24 percent.

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In contrast to other periods, during the first fifteen days of October, an element of pressure was the energy sector, due to seasonal factors. Electricity grew 18.47 percent and domestic LP gas 2.17 percent. In contrast, gasoline fell 0.19%.

For De la Cruz, these figures reflect economic stagnation, which inhibits consumer spending. And with the new economic data, the expectations for GDP growth are bad, since he estimates that it will range between -0.4 and -0.2 percent for the third quarter of the year. INEGI will confirm it next Wednesday. 

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