Construction industry has worst month since 2006, fourth month in a row of declines.
By Nick Corbishley, for WOLF STREET:
Construction activity in Mexico registered its biggest year-on-year fall in May since records began, in 2006, according to a monthly survey of construction companies carried out by the National Institute of Statistics and Geography (INEGI). It was the fourth consecutive month of declining activity.
The total productive value of construction projects under development contracted 3.1% between April and May this year and 10.3% between May 2018 and May 2019. During the same 12-month period, the total hours worked in the sector fell by 5.2% and the total number of (official) workers employed fell by 4.9%, to the lowest level since records began.
The construction sector survey provides monthly estimates of the total value of construction work done on new structures or improvements to existing structures for both public and private sectors. The data it uses includes the cost of labor and materials, architectural and engineering work, overhead, interest and taxes paid during construction, as well as contractors’ profits.
The survey is meant to serve as a barometer of the overall health of Mexico’s construction sector. In recent months, the warning signs have begun to mount. Over the last year, activity in the sector contracted in ten months out of 12. There are two main reasons for this drop-off:
One, many private sector investors are afraid to invest. Since Mexico’s new government came into power in December, there has been much greater enforcement of laws, rules and regulations concerning construction, which has made life more difficult for companies in the sector. The bombastic style and more leftist policies of the new president, Andrés Manuel Lopez Obrador (AMLO for short), have fueled fears among investors that property laws could become less business friendly. Those fears are also being stoked by many of AMLO’s staunchest opponents. “The first year of a new government is always complicated and investors are always wary,” says Luis, the owner of a family construction firm in Puebla. “But this time, it’s more accentuated.”
Two, public sector projects have ground to a virtual standstill. Mexico saw a a 24% year-on-year drop in public sector projects in May, compared to a much milder 1.2% fall for private sector works. Construction of public sector buildings (e.g. schools, hospitals, public administration buildings, etc.) was down by 29.5% year-on-year in May while work on transportation and urban planning projects contracted by 62.8%.
This slowdown in public sector construction has been particularly pronounced in the capital, Mexico City, where almost 500 public and private development projects — over 40% of all the projects under way — have been halted or cancelled by the new city council over concerns that many developers were breaking, or at least bending, local laws and regulations. Also, far fewer permits are being issued for new projects.
“The new municipal authorities are responding much more proactively to public complaints about abuses being committed by real estate companies,” said Gabriela Alarcón, director of Desarrollador Confiable, an organization that promotes good practice in Mexico City’s real estate industry. “Those companies have faced more rigorous inspections, leading to the closure or suspension of almost 500 projects in the capital.”
The most important project to be halted was the construction of Mexico City’s massive new airport, which, until its cancellation in December last year, was Mexico’s biggest infrastructure project, with a total budget of around $13 billion. The controversial decision by Mexico’s new President to cancel the project, for a potpourri of financial, political and environmental reasons, hit construction companies hard, including Mexico’s richest man Carlos Slim’s Grupo Carso.
It also battered investor sentiment in the country, despite the fact that the government offered to repurchase the bonds that were issued abroad through the Mexico City Airport Trust Fund. Now, seven months on, investors, both foreign and domestic, remain wary.
There’s still no sign of construction beginning on AMLO’s alternative project to add two runways to a military air base in Santa Lucia (30 miles north of the capital) in order to supplement Mexico’s City’s long-standing Benito Juarez airport. Work is also stalled on AMLO’s multi-billion dollar Mayan Train project, which has attracted interest from big financial backers such as BlackRock and Bank of America but faces growing opposition from local residents, environmentalists and archaeologists.
This is all happening against the backdrop of a gradually worsening economic panorama. In the last nine months, banks, rating agencies and the IMF have all sharply revised downward their 2019 GDP forecasts for Mexico. This week the IMF slashed its forecast from 1.6% (made in April) to 0.9%.
In a note published on Wednesday, CitiBanamex estimated that Mexico’s economy contracted by 0.1% in the second quarter of the year (April – June), compared to the previous quarter. If true, that contraction, together with the 0.2% decline notched up in the first quarter of 2019, would be enough to tip Mexico’s economy into a technical recession.
Although the exact GDP figure for the second quarter will not be published until July 31, on Friday markets were treated to a potential foretaste in the form of INEGI’s seasonally adjusted Global Indicator of Economic Activity, which reported a 0.3% year-on-year fall in economic activity in May.
This downturn is happening as Mexico’s biggest export market, the U.S., grows at an annualized rate of just above 2%, suggesting that many, though not all, of Mexico’s economic woes are internal. “Older investors are particularly worried as they see echoes of former crises such as the devaluation of the early ’80s and the Tequila Crisis of the mid-’90s,” says Luis.
Analysts at Mexico’s largest domestic-owned lender Banorte warn that this “pervading lack of confidence” is already impacting “aggregate demand and consumption.” It also risks exacerbating the two main causes of the recent slowdown of Mexico’s construction industry, the suspension of works in Mexico City and the slow reactivation of investment projects in the private sector. By Nick Corbishley, for WOLF STREET.
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New President Tries to Get Folks to Play by the Rules, and Everything Stalls
And nothing going to stall like his approval ratings. Playing by the rules puts one at a decisive disadvantage relative to those who do not.
In third-world countries like the US most people have to cheat just to keep up, and getting rich these days depends on coming up with an innovative mass scam. Ignoring regulations is a customary element of personal status. There are many examples. Complaining about it just gets you a reputation as a complainer, someone to be marginalised at best and targeted if the complainer doesn’t get the hint. Reporting a crime is a crime in many places, and whistleblowing will get you a prison sentence or worse.
Modern governing practice simply allows a free-for-all however possible unless it threatens the perogatives of the privileged classes. Important voter blocs prefer bullies, con artists, and crooks. Al Capone’s big mistake was failing to run for high political office.
It is ironic that the author’s complaint is that AMLO is trying to enforce the rule of law. While the U.S. has complained at great length about the lack of law enforcement in Mexico for years. The capitalist usually start by blaming the peasants for wanting to earn enough to eat. The author must really admire North Korea.
Old Engineer,
“… the author’s complaint is that AMLO is trying to enforce the rule of law.”
No, this is not the author’s complaint. This is the complaint of the construction industry, and the author is reporting it.
Lol
I’m surprised you took that comment serious enough to warrant a reply.
Unamused
“In third-world countries like the US most people have to…”
Ok, big boy, exactly which major countries (no itty-bitty <5M population countries count) do it better than the USA?
Yuuuuge leverage.
A simple modest remittance tax could pay for mucho wall. A large tax, in response to a nation doing little to stop economic migrants or to even encourage them, could crush the political party in power.
#####
Mexicans In The U.S. Are Sending Home More Money Than Ever
These annual “remittances” — as they’re called by analysts — topped $69 billion in 2016…
Mexico — for which remittances account for just over 2 percent of GDP — the ramifications could actually be greatest for the region’s poorest, most violence-prone countries. Remittances make up nearly 20 percent of GDP for Honduras and El Salvador, for instance. And in the case of Haiti they account for one-fourth.
https://www.npr.org/sections/goatsandsoda/2017/02/10/514172676/mexicans-in-the-u-s-are-sending-home-more-money-than-ever
You put a lot of thought into coming up with new ways to screw poor people and overthrow other countries, don’t you?
As usual, you blame the victims. But you don’t blame your favorite politicians for overthrowing their countries for the benefit of profiteering US corporations, generating hordes of refugees.
Go wash your hands. You have blood on them.
It is not just the poor. When I came out of college in the early 90s, subprime mortgages were new and easy to get. I bought junks by the beach that were one inch away from a red tag. A few of my friends bought newer homes in inland locations for the same price … they were unwilling to live in junk. The inland locations as well as my beach close areas were just as nice and safe. Flip ahead 27 years, and what a difference. My inland friends landed up without making all that much money on their homes. Why? Their areas are flooded with crime from illegals … while most illegals are honest, enough of them were not honest and their area is ruined … Their kids worry about gang members close to their home. I feel sorry for them. They bought real estate, and because of a crime problem from a small group of illegals, their real estate turned into a dud. They would have been far better off renting and putting their down payment into the stock market. Bottom line is middle class college educated also took a hit. Also, you need to be very careful about real estate investments. I got lucky on the beach locations … I had no idea the beach areas would stay relatively safe. It just happened that way. Sometimes, you just get lucky.
Job competition and lower wages due to illegal immigration is a real problem for Americans on the lower end of the skill spectrum. Why do you hate American workers?!?
Just kidding, but see how that works? Accusing someone of malevolence just for having a different policy position is no way to have a meaningful discussion.
The comparison to the US is a little unfair. It is no great feat to grow at an annualized rate of 2% when you are increasing debt by 5% or 6% of GDP; in fact, that’s sort of an admission of failure. If Mexico can achieve ~0% growth with a 2% deficit (which it had in 2018), then it is in slightly better shape than the US.
In any case, the complaints against AMLO seem to be changing from “populist communist” to “law-and-order type”; it will be interesting to see which role is more unacceptable.
Nick,
Thanks for the update.
Does AMLO travel under heavy armed guard at all times? Seems he must be since there are probably a few who would like nothing better than to see him assume room temperature.
One of AMLO’s campaign promises was the construction of a wall along Mexico’s southern border to stem the tide of illegal immigration from Central America. Is he facing the same resistance that DT has encountered in getting this funded or has that project gotten underway?
Here is a hint.
Illegals in Mexico are not allowed to get a job, not allowed to vote, not allowed to apply/consume any welfare benefits, not allowed to send thier children to school and will be arrested, jailed and deported without trial.
They turn a blind eye to migrants temporarily moving through Mexico. As long as they keep moving.
A google search doesn’t verify these claims about illegals in Mexico. Not even close. Most seem to want to reach the Us–a wealthier country. Their biggest problems in transit seem to be violence, extortion, and rape at the hands of the Mexican criminal classes.
I couldn’t verify the AMLO southern wall claim with a google search.
I doubt google would want you to find it.
I do not believe there was any talk of actual wall…..
“In an interview with Bloomberg, AMLO’s incoming security chief, Alfonso Durazo, said he and his boss will be building a new border police force aimed at interdicting illegal immigrants from Central and South America that have long used Mexico as a land corridor to the United States.
The idea is that the new force will act as a ‘wall’ to prevent illegal immigration, as well as drugs, weapons, and human trafficking into and through Mexico.
“We’re going to create a border police force that will be highly specialized,” Durazo said in an interview. “They need to apply the law.”
AMLO meets his Security every weekday morning at 6am and then holds a very extensive and substantive press conference every morning at 7 am.
AMLO travels constantly. Today he was in Veracruz, speaking in the vicinity of a small regional hospital of the Mexican Social Security Institute. He directly spoke to availability of health care to the poor, availability of medicines and specialists, salaries, quality of care. AMLO travels commercial coach and is inundated with citizens desiring “selfies” with the President. He dines at roadside shops, moves with minimal personal staff (though he frequently lassos Cabinet members for jaunts to the wilds of Chiapas or Baja California), and has sold off all the Executive jets, helicopters, and armored vehicles. He relies on the respect and admiration of “el pueblo” (the people) to protect him, and is absolutely unafraid.
AMLO never promised to build a wall on the Southern border with Guatemala. You are just making stuff up. AMLO recognizes the political and practical utility of having good relations with the U.S., no matter how whacky, unhinged, and incoherent the U.S. Chief Executive may be at any given moment. México (as well as Costa Rica) is getting hammered with refugees fleeing drought, hopeless poverty, unemployment, rampant gang violence, repressive and corrupt governments, conditions largely attributable to our activities there since the 1980s or before.
“MEXICO. SO Far From God, and So Close To The United States.”
Remember reading some headlines during the campaign about building at least a virtual wall along the southern border.
Don’t get the wrong idea here. This observer does NOT endorse the concept of walls. Walls are for keeping people IN, not out.
One does have to admire AMLO for his courage, if nothing else. The airport (or aerotropolis) was a horrible idea that never should have broken ground. Yet once these projects get underway, they’re very difficult to stop.
However the citizens voted ‘No’ for the new airport and AMLO is simply carrying out their wishes, despite stepping on the toes of many powerful interests. Now how do they go about getting their lake back?
AMLO also closed down the Mexican “White House” Los Pinos stating it was too expensive. Los Pinos, which is in Chapultepec Park in Mexico City, is now open free to the Public.
He travels with minimal security and flies commercial waiting in line with the unwashed masses. He came to the pueblo I live in riding in an SUV with a couple of security guys, stopped at the local Pemex to take a leak, then yucked it up with the pump jockeys, while they took selfies with him. Most of the people here love him because he’s seen as a regular guy who connects with the people and isn’t feathering his nest like other politicians.
Mexico has gotten too dangerous for investments. I know people who bought ocean front homes in Mexico’s resort cities … now, they are too scared to go there, frequently they are squated in, and they can’t sell them. This has brought ocean front home investment to a halt.
Then, there is the Trump effect … US businesses are holding back in new investments … for good reason.
You mean all those HGTV “International Beach House Hunter” shows were full of guacamole?
I once signed on as reserve captain of a yacht going from Panama to Miami. In the course of the voyage I learned that the yacht owner’s money came from a series of NAFTA maquiladoras that manufactured plastic medical items like pee bottles. He paid his workers $.50 cents per hour, and management 30k per year. Once the products had been filtered through the US Medical System racket they netted $50 to $100 each. Problem was he could only inspect his Mexican operations um-announced and in the company of a small army for fear that his employees and staff would discover what his true margin of profit was and carry out a just retribution.
I live in Southern Baja and cartel violence here has dropped precipitously since the EPN regime. There is a building boom going on and (unfortunately) more gringos are moving here everyday creating a burden on our infrastructure and driving up land prices.
Good news, Gregorio
At one point not long ago Cabo San Lucas reportedly had the highest per capita murder rate in Mexico. Hardly seems possible in a place populated by so many Gringo tourists. They must have had a full time squad scraping up the bodies every night and dumping them at sea—.
Can’t be too long until your section of Baja is indistinguishable from LA.
I truly think that the host of this site is trying, as best he can, under the preconceptions we all have, to post accurate information for his readers.
That said, the comments section shows such massive, unbridgeable gulfs in the values and ethics of those who post that I fear for the future. I am 54 and seem to remember a time when certain things were considered simply wrong or, as the British would once have said, Not Done. Today, almost everything is merely a matter of whose ox is being gored. The idea of universal values and universal human rights, once attacked by Postmodernists on the Left, are now assailed from the Right. All I see is a growing, psychotic “us versus them”, where when “my” guy or my country does it it’s OK but if your guy or your country does it, well, he or they are depraved, sick, and evil. It would be tiresome if it wasn’t so damned scary.
I flew to Cabos ten years ago to have some dental work done. Saved thousands of dollars. More recently I learned Algodones, MX across the Arizona border offers deep discounts on dental work.
Mexican unemployment is rising. European unemployment is falling.
The fact that inversion dropped because they are actually enforcing the law is both hilarious and depressing.
ALMO apparently has an approval rating of between 60-85%. He has a wee bit of leeway. Perhaps China will come to his rescue.
Ever notice in Mexico outside the city the houses are made of cinder blocks? One reason is that mortgages are not readily available, so someone building a house constructs it from paycheck to paycheck. Cinder blocks are one of the few building materials where the weather won’t harm an unfinished finished house, so construction can continue at whatever pace is needed. It’s also a great way to launder money. Building materials are bought for with illegally gotten cash, little by little, over years. Then one day there is a finished house that can be sold, and the cash proceeds are “clean”.
Or maybe the folk building their own houses bit by bit are just plain poor, but at least they have initiative. Paying a qualified builder for a house adds about 30-40% to the cost, so saving this margin is a smart move. What else are these folk going to do – live in tents?
No kidding. Rather laughable to accuse these poor people of laundering money….when in reality many of them don’t even have a bank account and work in the ‘informal sector’. A cinder-block house is a step up from a tin shanty!
Almost no one in Mexico has a mortgage, most people own their homes and cars free and clear, unlike the US where half the population is one or two paychecks away from living under a blue tarp. Which country is actually the poorer country?
Clueless Lunch:
By contrast in the Land of the Free mortgages run for 30 years and keep those who still aspire to Middle Class ownership indebted to the Banks and Tax Collector for the majority of their lives.
Providing a roof over your head through your own sweat and labor is money laundering?
While Apple having its IPhone addiction devices assembled by pre-teen girls living in barracks in China in order to create a retail profit margin of 45%, and then hiding the profits in overseas tax shelters in order to avoid US taxes is not?
This is just sad. AMLO is trying to de-corrupt things a bit, and he is likely going to be blamed for the slow down in the Mexican economy. It’s like the corruption has gotten so ingrained into the society and the economic structure, there is simply no way for a non-corrupt business or government to function.
I think this is ultimately an indictment of the failure of one party rule. The PRI had been in power forever, except that brief stint with Fox. But even he ultimately ended up with the PRI. This just isn’t a south of the border problem either, you can look at any major cities or states in the US where there has been prolonged one party rule, and the common denominator quickly becomes ineptitude and/or corruption.
I think you have a good take on the situation. Ingrained long term corruption means a price has to be paid. That price goes up over time.
The Pri-istas and the Pan-istas will do everything they can to crater the economy to regain their corrupt kleptocracy.
It’s a failed state. The violence is now underreported also. You have to know who to talk to.
It’s interesting to see that public works are coming to a halt under AMLO. I would’ve thought he would encourage infrastructure spending. Whether it’s the Mayan railroad or the money put intoPEMEX refineries, I really didn’t expect him to be a deficit hawk.
Ok, Ok, Ok, I get it. Mexico good. Americans bad.
Now for reality. Mexico has a long tradition of vast regulations and “permits”. These were put in place, so that local “permit” issuing agents could collect bribes for the permits. No bribe, no permit.
I don’t know how AMLO could stop the bribery, but apparently the Mexican president has zealots investigating permit issuance.
Have no fear, the bribery will continue, when a new scheme developed.
Regarding bribery of officials in Mexico, I am a permanent resident there. And was extorted for $25.00 by an Immigration official for rapid delivery of my physical card. “What is it worth to you to get your card tomorrow?
500 pesos? OK, go in the bathroom and put that in your passport. I will call you to the desk and you hand it to me”.
When I griped to my Law Professor buddy he pointed out that when they traveled to visit us he had to pay around $135.00 to our government to get his wife’s passport on time. Expedited service fee. He asked how is that any different? After some thought I agreed with him. I also realized that I had bribed an individual who would use the funds to support his family rather than a faceless bureaucracy that is just looking for more cash on the balance sheet.
It is a matter of perspective I know, but the fact is that additional funds transferred for a benefit is normal. In Mexico it is just “informal”.
Now I am prepared for that and do not feel violated.
Would the “graft” be better if it was institutionalized?
Maybe more palatable but frankly I rather like the ability to negotiate the cost. (said with a wry smile and a wink…)