Miguel Gutierrez and Anthony Esposito

MEXICO CITY (Reuters – Mexico’s economy suffered a 2nd consecutive quarter of contraction in the past three months in 2021. According to Monday’s official data, Latin America’s largest economy is now in technical recession.

Preliminary data released by the INEGI national statistic agency revealed that the gross domestic product (GDP), shrank by 0.1% over the third quarter in seasonally adjusted terms.

That beat out expectations in a Reuters poll for GDP to contract in the fourth quarter by 0.3% https://www.reuters.com/world/americas/mexicos-economy-likely-entered-recession-fourth-quarter-2022-01-28, after the economy declined by 0.4% in the third quarter.

Mexico’s Deputy Finance Minister Gabriel Yorio said Friday that talk of a “technical recession,” https://www.reuters.com/world/americas/mexicos-finance-ministry-says-talk-technical-recession-imprecise-2022-01-28 defined as two consecutive quarters of contraction, does not take into account coronavirus-related economic volatility and global supply chain issues.

Yorio claimed that there are three main factors that affect the economy: global supply disruptions, higher raw materials prices, as well as increased costs of ground transport and shipping.

“We are not sure that Mexico will be in recession much longer,” said Nikhil Sanghani, Capital Economics’ emerging markets economist at Capital Economics. According to Nikhil Sanghani of Capital Economics, an emerging market economist for Capital Economics, supply shortages are easing. This should allow auto production and the drag on output caused by the outsourcing law to begin to diminish.

Sanghani predicts that recovery will be slow in coming quarters due to recent restrictions tightening following Omicron’s surge in viruses cases. In the short term, austere fiscal and tightening monetary policy will have a negative impact on domestic economic growth.

INEGI data showed that tertiary, or the service sector, declined by 0.7% over the third quarter of seasonally adjusted terms.

According to Alberto Ramos, a Goldman Sachs economist (NYSE:), the decline of “the labor-intensive tertiary industry (is) a result of the recent approval of outsourcing laws which caused a significant decline in services rendered corporates, and businesses,” he said in a research paper.

Primary activities include farming, fishing, and mining. Secondary activities increase by 0.4%.

According to data, Mexico’s economy increased by 5.0% in full-year 2021 after it had shrunk by 8.5% during 2020. This was Mexico’s worst recession since 1930s Great Depression.

Alfredo Coutino (NYSE: Analytics), head Latin America analysis, Moody’s (NYSE) Analytics said that the strong growth of 2021 was more due to the arithmetic effect of 2020’s low base of comparison and less due genuine growth derived form productive capacity.

The fourth quarter GDP growth was 1.0% higher than the year-ago period, according to data.