The Mexican and the U.S. economies have historically grown or declined in tandem, but not this year.
Revised data released Monday by Mexico’s National Institute of Statistics and Geography showed the country’s economy contracted by about 0.1% for three straight quarters before flat lining in the third trimester of 2019. Bank of America Merrill Lynch economist Carlos Capistran referred to that economic slump as a “technical recession.”
Mexico’s economic slowdown is unusual because the U.S. economy is still growing. The last Mexican economic recession that was not accompanied by a U.S. slowdown took place in the 1990s during the so-called Tequila Crisis, Capistran points out.
The Tequila Crisis refers to a collapse in the Mexican peso against the dollar sparked by a violent uprising in Southern Mexico and the assassination of a presidential candidate in 1994. Those events increased the risk premium on Mexican assets, including the peso and weighed on the country’s economy.
The Mexican recession comes amid uncertainty around the U.S.-Mexico-Canada trade agreement, which has shaken sentiment in Latin America’s second-largest economy.
“The balance sheets of business and consumers do not seem to be under strain yet,” Capistran said in a note Monday. “So, in our view, the technical recession was likely triggered by a large confidence shock.”
Read More: https://www.cnbc.com/2019/11/26/mexicos-economy-has-not-been-this-weak-since-tequila-crisis.html