Author:Price, John

Is Mexico in a recession? Well, yes ... and no. Ever since joining NAFTA, Mexico has operated two economies. Sometimes, the two economies walk in lock-step, but most of the time they are somewhat out of sync, which has proven to be a comforting source of diversification and stability.

The domestic economy, roughly 60% of the total, is driven by consumption, national government spending, and private investment, led by Mexico's powerful industrial grupos. Consumer and government spending are both tied to Mexican oil production and global prices, both of which are soft at present.

Mexico's domestic economy is in recession. Some of its demise is owed to external factors, others to a predictable sexenio lull in investment, but also to Mexican investor fear of President Lopez Obrador's administration. As of May 2019, gross fixed investment in Mexico was down 7.4% y-o-y and dropped 3.2% from January to May, according to INEGI (as per Spanish Instituto Nacional de Estadlstica y Geografia).

Even if Lopez Obrador, widely known by the acronym AMLO, would like to pursue his most ambitious projects (a high-speed train network, new refineries, government decentralization, an alternative Mexico city airport), he lacks the tax revenue to do so. Furthermore, he is at odds with the Central Bank, which has proudly defended its hawkish reputation in spite of AMLO's desire for looser policy. No time soon can the national government be a significant economic lever of growth, fiscally or monetarily, in Mexico.

Cheap oil has been hard on the Mexican peso, but many also speculate that capital flight has weakened the currency. The peso is one of the most liquid currencies in the world, with $90 billion worth traded each day. Thus, it is hard to detect when capital is sent abroad, as allegedly many wealthy families have done since AMLO was elected.

The sole shining light in Mexico's economic makeup is trade. Exports will grow almost 9% in 2019, thanks to strong U.S. demand and Mexico's ability to capture manufacturing orders previously sent to China, a trend that may grow in...

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