Global Slowdown, Internal Issues Hit Mexico: GDP Drops for First Time Since 2009

President AMLO put it this way: “There may be no growth but there’s development and well-being, which are different.”

By Nick Corbishley, for WOLF STREET:

For Mexico’s economy, 2019 was not a good year. The country entered a mild technical recession in the first half and by the end of the year had registered its first annual decline in GDP since 2009. According to a preliminary estimate published by Mexico’s statistical institute INEGI, “real” GDP (adjusted for inflation) for the year 2019 declined -0.1%:

In the fourth quarter, “real” GDP declined 0.3% compared to the same quarter a year earlier, making it the third quarter in a row of year-over-year declines:

The biggest drop was in the secondary sector — manufacturing, mining and construction — which contracted by 1.8% in 2019, its weakest performance in over five years. Particularly hard hit were automakers which saw new vehicle sales in the domestic market slump 7.5%. The current global slowdown in auto demand also took its toll, with total auto exports falling by 3.4% to 3.3 million units in 2019, the first annual decline since 2009.

Manufacturing exports as a whole, which represent 90% of all Mexico’s exports, increased by 3.4% to reach $410 billion. This helped to cushion the blow of a 15% plunge in petroleum exports, to their lowest level in 40 years — the result of two main factors, according to analysts in the sector: the Mexican government’s decision to prioritize sending domestic crude to domestic refineries as opposed to exporting it; and reduced demand from Mexico’s biggest buyer of oil, the United States.

Despite all of this, total exports from Mexico still managed to grow by 2.3% while total imports fell by 5.1%, leaving the country with a trade surplus of $5.8 billion.

Mexico’s construction industry continues to struggle. In November, the last month on record, it notched up the 17th straight month of declining output. This is happening due to two main reasons:

Private investors are afraid to invest. Since the change of government in December 2018, there has been stronger enforcement of laws, rules and regulations concerning construction, which has made life more difficult for companies in the sector. Though largely well-intended, the inevitable result has been to make Mexico’s already painfully slow bureaucratic system even slower.

Public sector projects have ground to a virtual standstill. In the first half of 2019, Mexico’s new government invested just 20% of its projected budget for construction. 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 — were halted or cancelled by the new city council.

The defining moment came in November 2018, when the people voted in a referendum to scrap a one third-finished $13-billion airport project for the capital that was at least $4 billion over budget, mired in allegations of corruption, and posed a host of structural and environmental problems, delivering a massive blow to investor confidence.

The services sector — which accounts for 60% of Mexico’s GDP and includes health services, financial services, transportation, retail, education, and the like — did not fare so well. Following years of uninterrupted growth, it grew by just 0.1% in 2019, suggesting that the recent declines in manufacturing and construction have now spread to the all-important services sector.

It wasn’t all bad news, however. The primary sector – agriculture and livestock – which accounts for only a small part of the overall economy, grew by 1.9%, compared to 0.9% growth in 2018. That was good news for Mexican farmers and agricultural exports, and no mean feat given the prolonged uncertainty surrounding the USMCA trade agreement, which was ratified this week.

It’s not unusual for the first year of a new administration in Mexico to be beset by economic problems, as investors wait to see what kind of policies the new government adopts. Many move their money out of the country. It happened in 2000-01, 2006-07 and 2012-13. And it just happened again. The major difference this time is that Mexico’s president, Andrés Manuel López Obrador (AMLO) doesn’t seem to set quite as much store in official economic growth figures as his immediate predecessors, as he reminded investors today at his daily press conference:

“[These growth figures] were already expected, but the parameters for measuring the level of well-being in Mexico are changing. In our society and based on other data I have at my disposal, there is general well-being. There may be no growth but there’s development and well-being, which are different”.

It’s probably not the message investors want to hear. They will be hoping that the passage of the new trade agreement, coupled with AMLO’s new infrastructure plan, will reignite Mexico’s economy. If they don’t, the pressure on the Bank of Mexico to step in and cut its policy interest rate, which currently is at 7.25%, following three rate cuts last year, will only rise. By Nick Corbishley, for WOLF STREET.

GM shifted even more production to Mexico (as its US sales fell). But Ford’s imports from Mexico plunged. FCA’s, Audi’s, Nissan’s were down too. Read…  US Auto Imports from Mexico Hit Record, but Mexico’s Global Auto Exports Fall for First Time since 2009

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  21 comments for “Global Slowdown, Internal Issues Hit Mexico: GDP Drops for First Time Since 2009

  1. Frederick says:

    I think the SARS epidemic peaked in 2003 but I get your drift Chris Martenson is saying that the present virus has a RO or rate of transmission that is higher than the SARS virus and therefore could be much worse

  2. Cas127 says:


    “cut its policy interest rate, which currently is at 7.25%”

    That is quite a spread to US Treasuries. Of course, trying to borrow US to lend in Mex always faces FX risk but still…

    Bigger question/future post idea – what metrics are central banks *really looking* at when they adjust interest rates to encourage capital imports/discourage flight capital.

    A lot of “developed” economies are Nirpd or Zirpd – presumably domestic/currency captive funds are sufficient for investment purposes.

    Or the economies are big enough so the CBs can print freely without the inflation fraud becoming obvious.

    Developing countries apparently can not get away with this – they have to set interest rates at 4+ to keep/attract capital.

    My question is this…what is the metric used to divide the two types of countries – ie, when/how does the Mex CB *know* it needs to hike rates – what numbers is it looking at?

    I suppose Falling FX rates tell the Mex CB that wealth is leaving the country, but how much is too much (or vice versa).

    • Wolf Richter says:


      The Bank of Mexico is trying to prop up the peso. And inflation was over 6% in 2017 and over 4% last year, though it has now dropped below 3%.

      • Cas127 says:


        Okay…but I guess my question is what real world (non financial – if any) stat do central banks look at to guide their rate changes his a vis international competitiveness.

        I get that true domestic unemployment (vs US confection) helps determine rates, as does inflation (interest rates used to restrain overheating, to provide some real return) but interest rates (and closely tied FX rates) have a profound impact on import/export/intl competitiveness too – so it would be useful to have an idea of what metrics CBs use to judge their own nation’s intl competitiveness.

        And while there are financial stats reflecting this (rising/falling domestic currency demand) the interest rate regime can distort the competitiveness reading (an inefficient producer nation can still attract intl capital – for a while – by hiking rates).

        I imagine CBs would like to have a more accurate picture of their nations’ real product competitiveness (shorn of FX effects) before making interest rate decisions.

        My question is, what real production stats do they look at to judge their (non financial) standing in the world.

        I ask, because at the end of the day, it is productive efficiency that determines the fate of nations – not the politically influenced financial overlay.

        Unfortunately, it is financial stats that get the widest distribution.

        • Unamused says:

          it would be useful to have an idea of what metrics CBs use to judge their own nation’s intl competitiveness.

          Central banks serve the interests of their member banks, and those have gone global. So they have little, if any, interest in the ‘international competitiveness’ of whatever country they happen to inhabit.

          This is hardly a recent development:

          Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.

          – Thomas Jefferson

  3. Paulo says:

    No growth compared to growth of the US 1.9% is NOT a very large distinction, is it? If you imposed a service gouge like the US medical cartel on Mexico, maybe the growth would be the same. And if you add in the cash from the cartel’s operations and remittances home, who actually knows what the real numbers are?

    • Cas127 says:

      “you imposed a service gouge like the US medical cartel on Mexico, maybe the growth”

      Nice…if Keynesianism loves it some compelled dissaving…wildfire medical inflation is one way to herd mortals into the Keynesian Kattle Kar to nowhere.

      But just as “productive” as might be expected…we’ve had declining life expectancies of late…heck of a 20 pct GDP medical system, Brownie…

  4. Wolf Richter says:

    Wrong time slot. The SARS outbreak was 2002-2003

  5. Unamused says:

    Mexico can fake up positive ‘growth’ numbers the same way the US does: just rack up more debt. Problem solved.


  6. nick kelly says:

    Re: the airport. It’s usual for big projects like this to go over budget, but not usual to build an airport on ground that is settling inches per year. If there is one thing you don’t want for a jet going 150 MPH along a slab of concrete, it’s cracks.

  7. gorbachev says:

    If he could measure the increase in well being and if it was true that

    would huge

  8. Mexico has obstacles to foreign investment, which probably limits the number of Chinese. Mexico may benefit two ways, avoiding the Coronavirus (first US p2p, husband and wife in Chicago) and US businesses may relocate closer to home. USMCA opens a new era. US trade reps insist on higher wages, the government fears it will set off a cycle of inflation. US utilities building their infrastructure, (owned by Mex) pullback on public works projects, always expensive and always corrupt shows (perhaps) that new pres wants to shift investment to the private sector. Immigration problem upside down, Americans fed up with their country want to live in a place where gov leaves them alone, with only 1/3 the US population arable land and sea coast. Pobrocitos in El Norte prop up our failing system, while US expats head for paradise. What has GDP based economic policies ever done for us?

  9. nick kelly says:

    A key difference is the age and health of the sample.
    During the SARS outbreak, the province of Ontario and city of Toronto came in for a lot of criticism re: slow response.

    This prompted a column in I think the Globe and Mail pointing out that more died of flu.

    Here is the difference: of the few hundred infected with SARS in Toronto who died, one was a doctor in his 40’s and 2 were nurses. (If you are a sick doctor you get very good medical care)

    Once when Churchill was sick and not resting, his doctor told him pneumonia was an old man’s friend ‘because it takes them off quietly’

    Flu deaths are overwhelmingly among the old or already vulnerable. One victim of the new virus was 36. It also looks more contagious than flu. I guess we We have accumulated a degree of resistance to older types like the 1918 one that apparently killed more than died in battle in WWI. But not for new ones that jump from animals. When the swine flu was being examined under the E-scope, the early researcher thought it looked a bit avian. It had jumped from ducks to pigs to us.

    • NBay says:

      “no growth but development and well- being”
      Hedonistic tortillas…..more lard?

      Look at the Mexican GINI index……we are getting there, if not there already…..still no private armies in gated communities here yet….well maybe small contingents of ex-seals in some of them…..I think Gundlach owns one or two ex-seals at his LA compound.

      • NBay says:

        Had to hook comment on somewhere….but read Nick’s comment. Safe to say he doesn’t know much Biology. Stick to worrying more about auto accidents.

    • nick kelly says:

      ‘The likelihood of dying from SARS in a given area has been shown to depend on the profile of the cases, including the age group most affected and the presence of underlying disease. Based on data received by WHO to date, the case fatality ratio is estimated to be less than 1% in persons aged 24 years or younger, 6% in persons aged 25 to 44 years, 15% in persons aged 45 to 64 years, and greater than 50% in persons aged 65 years and older.’

      Source: WHO

      • NBay says:

        “Given area”, avg health conditions, diets, housing and medical facilities, air/water quality, etc… European genetics are different.
        Sorry, still stand by comment, and I’m at risk for most everything at 73. Not that I don’t think an effort to contain it shouldn’t be made. I guess time will tell.

    • nick kelly says:

      Virus Death Rate

      Wuhan Novel Coronavirus (2019-nCoV)
      Swine Flu
      Seasonal Flu

      Source: WHO

      So SARS is roughly a thousand times more deadly than seasonal flu while 2019 c.nov looks like merely 200 times more deadly. (estimate for latter is starred because too early) Anyone know anyone 30- 45 who died of seasonal flu?

      If the US population had been exposed to SARS as it was with the seasonal flu, there is no reason to doubt the toll would be in the tens of millions.

      For obvious reasons, I wouldn't normally belabor this, but it is mind boggling to think that nature holds no big surprises.

  10. MC01 says:

    Mexico is dealing with a triad of problems.

    The first is the manufacturing slump that is hitting all manufacturing districts in the world and that has very deep and convoluted roots. In Mexico it’s chiefly affecting states like Guanajuato where foreign companies have set up shop to take advantage of repressed wages and (often) spotty enforcement of environmental regulations.
    The second is organized crime. Cartels are not merely very active in their traditional battlegrounds (Michoacán, Sinaloa etc) but are extending their reach in areas like Guerrero and Yucatán where they have traditionally been absent or kept a low profile. Violent crime may be “endemic” to parts of Mexico but it’s clear to anyone the situation has long spiraled out of control.
    The third is corruption. These Morena folks are well meaning, but so far they have gone too soft on corrupt government employees, partly because they fear politically powerful unions and partly because they are permeated by “the small guy is always a victim” mentality. It’s fine to try and send to jail the police boss who took money from criminal cartels to look the other way, but what about his men who ran a protection racket in the local marketplaces? What about the low level Pemex employees stealing anything that isn’t nailed down?

    Nobody expected these Morena folks to magically transform Mexico overnight, but like many other similar political parties all over the world they seem afraid to “send the wrong signal to the economy”. They usually start well but then stop, perhaps because they fear they won’t have magic GDP growth numbers to flash around. Now they say they don’t care about these magic numbers: that’s another good start but will they follow up? Or will they just bog down as they have done so far?

  11. Why are you turning this into a flu story? I’ll just point out how ridiculous those 2018 numbers are. 10,000+ people died PER MONTH during the flu season, and it wasn’t THE TOP STORY from then to now? Riiiiiight. I won’t say anything more because I don’t think any of us want to have THAT discussion.

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