Economic Indicators Signal a Potential Recession
The National Institute of Statistics and Geography (INEGI) recently released data suggesting that Mexico’s economy is in a clear process of deceleration, possibly heading towards a recessionary year. The Indicator Opportune of Private Consumption estimates that this aggregate decreased in March and April, with monthly drops of 0.2% and 0.1%, respectively. Compared to the same months in 2024, reductions were 1.3% and 1.1%, respectively. If these forecasts hold, private consumption will continue its negative trend initiated in July 2024 following Sheinbaum’s election victory.
Consumer sentiment, as per the corresponding survey, shows pessimism with the Index of Consumer Confidence sitting at 45.3 points in April, a decrease of 0.6 points from March and 2.2 points from April 2024. The ongoing decline in private consumption, the primary component of aggregate demand, suggests that the economy is likely to contract this year.
Industrial Activity Also Shows Decline
INEGI also reported two industrial sector indicators. The Monthly Indicator of Industrial Activity for March showed a 0.9% decrease from February and a 1.3% drop compared to March 2023. Notable reductions include mining (2.8% monthly, 10.1% annual) and manufacturing industries (1.1% monthly, 1% annual).
The March industrial survey revealed a significant monthly production drop of 2%. These indicators, combined with the consumption private sector’s performance, likely reflect a decrease in GDP for the first quarter. If true, the current administration’s GDP would have contracted over two quarters, pointing towards a full-year GDP decline.
Export Ban and Rising Inflation Add to Mexico’s Woes
The U.S. government banned Mexican beef exports due to the screwworm infestation, thirty years after its eradication. The decision, stemming from López Obrador’s austerity measures that relaxed sanitary controls, allowed contraband of infected livestock from Central America. The situation worsened with the suspension of sterile fly imports. Estimated daily losses due to the U.S. ban amount to $11 million.
Inflation Remains Persistently High
Another challenge is the recent surge in inflation, particularly the subjacent component of the National Consumer Price Index (INPC). The subyacente INPC stood at 3.93% in April, indicating a sustained inflation dynamic largely driven by economic agents’ expectations about the INPC’s future trajectory, anchored near that rate. Despite this, the Bank of Mexico raised its inflation forecast for upcoming months and anticipates an upside risk for this variable. Despite these concerns, the bank reduced the interbank overnight interest rate by 50 basis points to 8.5%, signaling a similar cut in the next monetary policy meeting.
Government Decisions Impact Education and International Relations
The government decided to increase teachers’ salaries by 9% retroactive to January and another 1% in September. While this benefits teachers financially, it detaches their wages from educational quality. López Obrador’s cancellation of the 2013 education reform, which included quality improvement incentives, to secure teachers’ political loyalty, has negatively impacted human capital accumulation and educational quality. The reversal, along with the implementation of the communist “New Mexican School” program, ensures that public education quality remains poor, condemning graduates to low productivity and real wages upon entering the labor market—a hindrance to economic growth.
Accident Involving Mexican Navy Ship
Lastly, the Mexican Navy’s training ship “Cuauhtémoc” collided with the Brooklyn Bridge in New York, apparently due to an electrical supply failure. This incident may be another casualty of austerity measures.
Key Questions and Answers
- What are the economic indicators suggesting about Mexico’s economy? The Indicator Opportune of Private Consumption and industrial activity suggest Mexico’s economy is in a clear process of deceleration, possibly heading towards a recessionary year.
- Why was there a ban on Mexican beef exports by the U.S.? The U.S. government banned Mexican beef exports due to the screwworm infestation, exacerbated by López Obrador’s relaxation of sanitary controls.
- What is the current state of inflation in Mexico? Inflation remains persistently high, with the subyacente component of the National Consumer Price Index (INPC) at 3.93% in April, indicating a sustained inflation dynamic.
- How have recent government decisions affected education and international relations? The cancellation of the 2013 education reform and implementation of the “New Mexican School” program have negatively impacted human capital accumulation and educational quality. The beef export ban has strained U.S.-Mexico relations.
- What led to the “Cuauhtémoc” accident? The collision of the Mexican Navy’s training ship “Cuauhtémoc” with the Brooklyn Bridge appears to be due to an electrical supply failure.
