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Mexican Peso Drops As Economy Shrinks in 2019

February 25, 2020 at 17:42 by Andrew Moran

A heap of 100-peso billsThe Mexican peso is trading relatively flat against several major currency competitors on Tuesday. With the latest economic data coming in mixed, the public and investors may be becoming increasingly impatient with President Andres Manuel Lopez Obrador’s policies. A cyber attack on the nation’s economy ministry did not help spur confidence in AMLO’s government either.

In the fourth quarter, the final gross domestic product (GDP) growth rate reading came in at -0.1%, unchanged from the previous quarter. The decline was driven by a drop in industrial output (-1.2%), manufacturing (-2.2%), and mining (0.5%). But the contraction was capped by an expansion in services (0.2%), retail (0.5%), and real estate (0.6%). Last year, the Mexican economy tumbled 0.1%, down from the 2.1% gain in 2018, which represents the first contraction in a decade.

Economic activity in December rose 0.2% up from 0.1% in November. Year-on-year, the nation’s economic activity rebounded 0.7%, up from the 1.2% decline in the previous month. The market had penciled in a 0.5% boost. The positive reading stemmed from services (1.5%), retail trade (6.1%), and primary activities (0.4%).

The mid-month inflation rate for February clocked in at 0.12%, falling short of the median estimate of 0.18%.

Despite a lack of investment and growing uncertainty over AMLO’s policies, Finance Minister Arturo Herrera remains optimistic about Latin America’s second-largest economy. He cited stabilized debt and inflation levels and a leveled peso as reasons for his bullish sentiment. The country also has room for cutting interest rates.

But not everyone is as ebullient. The Bank of America is calling for 0.5% growth, economists estimate just 1% expansion, and the International Monetary Fund (IMF) recently slashed its GDP projections from 1.3% to 1%.

And, in another black eye for the AMLO administration, the Economy Ministry suffered a cyber attack over the weekend. Although officials say that the security breach did not result in sensitive information being stolen, the government confirmed that it has enhanced safety measures.

Next on the data front, retail sales, the unemployment rate, and the trade balance.

The USD/MXN currency pair rose 0.05% to 19.0829, from an opening of 19.0722, at 16:32 GMT on Tuesday. The EUR/MXN jumped 0.24% to 20.7536, from an opening of 20.6981.

If you have any questions, comments, or opinions regarding the Mexican Peso, feel free to post them using the commentary form below.

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