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MEXICO – The Mexican economy, the second largest in Latin America, has experienced a difficult period, penalized by a decline in business confidence and an industrial recession.
But before the GDP data for the second quarter, expected by July 31, a debate has erupted over whether all this gloom added to a recession.
Several banks say that yes, an badessment that could question the capacity of the government of President Andres Manuel Lopez Obrador, eight months old, to keep his promises of development and improve his fortune for the poor of the country.
"We estimate that the GDP will also shrink in the second quarter, which will put Mexico in technical recession, two consecutive quarters of negative growth," said Bank of America Merrill Lynch in a customer note late June.
The government strongly disagrees.
"There has been a global slowdown," Finance Minister Arturo Herrera said at his first press conference earlier this month, following the abrupt resignation of his predecessor. "But we are very far from thinking that we are close to a recession."
In theory, determining if there is a recession in Mexico could decide if policymakers should take action.
"If the government thinks that there is a danger of recession, it could implement countercyclical measures to stimulate the economy, or the Bank of Mexico could reduce the interest rate, said Marco Oviedo, Head of Economic Research at Barclays for Latin America.
While Lopez Obrador raised his eyebrows saying "I have other figures" when he is presented with negative economic news, even though he does not claim that Mexico is experiencing a strong growth.
The split between government and private sector economists on the "R-word" seems to place more emphasis on the definition of this extremely busy term than on any disagreement on substantive data.
Those predicting the recession cite the benchmark of two consecutive quarters of economic contraction – and argue that preliminary GDP figures for April-June will likely confirm it.
However, although they are commonly used by private economists around the world, not all governments use this measure. The highly respected US Bureau of Economic Research (NBER) based in Cambridge, Mbadachusetts, for example, is considering a more open, significant decline in economic activity in the economy, which lasted more than a few months. "
Similarly, a senior official at the Mexican Ministry of Finance, who asked not to be named, said two quarters of successive contraction did not necessarily mean a recession.
The ministry is considering more factors, said the official, although he did not specify what these factors were.
Jonathan Heath, former chief economist of HSBC appointed to the central bank board by the Lopez Obrador government, also rejected the "two quarters" definition, which he recently described as "a general rule for defining a recession" "but" no guarantee ".
To make the debate less political in the future, the Mexican statistical agency INEGI announced last month the creation of a group of experts, including Heath, who will look at how other countries measure the cycles. economic.
The agency said the group would decide by next year whether Mexico should create a business cycle dating committee, after studying the experience of similar committees used by the NBER. , the euro zone, Brazil and Canada to help identify recessions.
Worse since the 2009 crisis
No matter what constitutes a recession, the government figures are sobering.
The economy contracted by 0.2% in the first quarter compared with the previous quarter, in seasonally adjusted data, and remained stable in the fourth quarter of 2018.
Pollyanna De Lima, economist and author of Mexico's Manufacturing Purchasing Managers Index Report, Markit Mexico, said that during the first quarter, the sector of manufacturing in Mexico was at its lowest since the beginning of the series in 2011.
The business climate has plummeted "to one of the lowest levels ever recorded in the history of the survey," said De Lima.
The slowdown was consistent with a broader global trend that has led several other Latin American economies to reduce their growth forecasts. The largest economy in the region, Brazil, is also on the brink of a recession. It contracted in the first quarter of the year and, according to the figures, it barely recovered in the second quarter.
It is not uncommon for the Mexican economy to contract a quarter in the previous three months – this has already been done five times since 2009. The global financial crisis triggered by the housing crisis in the United States was the last Mexico was in recession, contracting for three quarters.
But the biggest drop in the country's industrial output in a decade, down 2.1% in May, led economists to question whether this period was different.
Alfonso Ramirez Cuellar, a member of the Lopez Obrador Left National Regeneration Movement and chairman of the Congressional Lower House budget committee, said that instead of asking if Mexico was technically in recession, "we have to accept that the country's economy weakens and works from there. "
Mexico's commitment to generating a 1% budget surplus in the primary budget makes it unlikely a major fiscal stimulus package, even though the government could tap into the funds available for rainy days.
Lopez Obrador's reaction to negative data so far has been to blame critics for adhering to a "neoliberal" mindset.
"This is not a particularly serious argument.If the economy shrinks, you will have less to distribute.I have never witnessed the development of a declining economy," he said. Alberto Ramos, head of Latin American research at Goldman Sachs.
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