The Mexican economy has stagnated; however, there is room for recovery, noted Barclays in a research report. There seems to be some progress in oil production and manufacturing. Oil production has rebounded, recording 1.7 million barrels per day in September and Pemex has stated that it is likely to end the year at 1.8 million barrels per day, which suggests growth of 1 percent quarter-on-quarter in the fourth quarter.
There is a high likelihood that production of oil will stabilize at 1.8-1.9 million barrels per day in 2020. Moreover, manufacturing has stabilized too. In the third quarter, manufacturing grew 2 percent three-month-on-three-month saar in September, just slightly lower than in the second quarter of 2019.
“In our view, the possibility of having USMCA approved soon and the lower risk of a trade war with China should provide a boost to manufacturing in Q4 and 2020, expanding closer to 3.0 percent y/y in 2020, rather than the 1.0 percent y/y observed year to-date”, stated Barclays.
Meanwhile, there appear to be risks in the sector that has mainly weighed on this year: construction, which has dropped 4.7 percent year-to-date. There is lack of public investment. Public construction investment, up until the first half of 2019, dropped 11.6 percent year-to-date, while the private component dropped just 0.2 percent.
The services sector has not performed well in the third quarter, but has showed improvement in the fourth quarter. With employment having slowed down while staying positive, and real wages also growth, private consumption is believed to be the main source of growth towards the end of 2019 and the start of 2020.
“Overall, we estimate that the Mexican economy will record zero growth in 2019, but will improve to 1.4 percent y/y in 2020 and return closer to potential growth in 2021, expanding 2.2 percent y/y”, added Barclays.