Mexico Economy Stalls

Mexico’s economy stalled in the second quarter amid a drop in oil and industrial output and a slowdown in services activity.

Gross domestic product declined 0.2% from the previous quarter in seasonally adjusted terms, compared with the preliminary 0.1% contraction estimate and a 1% expansion in the first quarter, Mexico’s national statistics institute reported on Friday. Non-seasonally adjusted GDP rose 2.6% from a year earlier, Bloomberg reported.

While the economy is expected to expand faster this year than in 2017 due to a pickup in spending that preceded the July 1 election, the path ahead is far from smooth. The International Monetary Fund last month cut its forecast for Mexico’s 2019 growth, citing trade tensions as well as uncertainty over the North American Free Trade Agreement and the president-elect’s policy agenda.

Andres Manuel Lopez Obrador spurred concern this month by saying he will hold a public referendum on whether to cancel construction of a $13 billion international airport for Mexico City, the biggest infrastructure work of President Enrique Pena Nieto’s administration. Lopez Obrador has said the airport is too expensive and mired in corruption, and, at times, has proposed turning it into a concession or canceling it altogether.

The incoming president has also raised eyebrows by saying he will review oil contracts already awarded for signs of potential corruption, and by naming an industry novice to head state-owned crude producer Petroleos Mexicanos, the nation’s largest company. Turning around Pemex will not be easy, given 13 straight years of declining output and a debt load that exceeds $100 billion.

Mexico’s economy is expected to grow 2.2% this year and 2.1% in 2019, according to analysts in a survey released by Citigroup Inc.’s local unit last Tuesday.