By Anthony Harup
MEXICO CITY — Mexico’s economic activity contracted in the fourth quarter in a second straight decline — a technical recession — with weakness in services offsetting gains in industrial production and agricultural production.
Gross domestic product, a measure of the production of goods and services, fell 0.1% from the third quarter in seasonally adjusted terms, after contracting 0.4% in the previous quarter, it was reported on Monday. the National Institute of Statistics.
Services fell 0.7% from the third quarter, while industrial production rose 0.4% and agricultural production 0.3%.
Two consecutive quarters of GDP contraction is a technical recession. “I wouldn’t overdo it, but overall the economy is quickly returning to a rather lackluster growth trajectory,” said Alberto Ramos, chief economist for Latin America at Goldman Sachs. “We are still quite far from where we started before the pandemic.”
In unadjusted terms, GDP increased by 1% compared to the fourth quarter of 2020 and increased by 4.8% for the whole of 2021.
The rebound from an 8.2% contraction in 2020 lost momentum in the second half of the year as services were held back by mobility restrictions in the third quarter during a spike in Covid infections, the slowdown in construction activity and supply chain bottlenecks that have plagued a number of industries, including the automotive sector.
Services were negatively affected by changes to labor laws than by the ban on outsourcing of staff, although the change had little or no effect on overall employment which has regained its pre-pandemic levels.
“I would say bad policy led to a contraction in activity,” Ramos said.
Lack of investment and the government’s decision to provide limited fiscal stimulus during the pandemic in favor of maintaining a ceiling on public debt contributed to last year’s anemic growth, said Alfredo Coutiño, director for Latin America at Moody’s Analytics.
“As a result, the economy was unable to take advantage of the stronger boost provided by external demand coming from the US market,” he said.
The slowdown came as inflation hit a 20-year high, prompting the Bank of Mexico to raise interest rates five times between June and December, raising the target for the overnight rate to 5 .5% versus 4%.
The central bank is expected to continue raising interest rates this year.
“We doubt Mexico will remain mired in recession for much longer. Supply shortages appear to be easing, which should allow auto production to strengthen as the production curb of the outsourcing law begins. soon to fade,” said Nikhil Sanghani, an emerging markets specialist. economist at Capital Economics. “But the recovery will remain slow in the coming quarters.”
Write to Anthony Harrup at anthony.harrup@wsj.com
