Mexican economy drops in Q3 in blow to recovery

Bloomberg

Mexico’s economy shrank in the third quarter after new legislation banning labour outsourcing hit the services industry and coronavirus cases surged.
Gross domestic product declined 0.2% from the previous three-month period, compared to the median estimate in a Bloomberg survey of no growth. It’s the first contraction since the second quarter of 2020, when Mexico imposed its harshest set of restrictions to tackle the Covid-19 pandemic. From a year ago, GDP grew by 4.6%, according to preliminary data from the national statistics institute published.
The contraction halts the recovery of Latin America’s second-largest economy, which still has to recoup pre-pandemic levels after suffering last year its worst recession in almost a century. It also complicates plans by President Andres Manuel Lopez Obrador, who has repeatedly said the economy was doing “well” after refusing to boost public spending to help households and companies during the coronavirus outbreak.
Mexico in April passed legislation banning most subcontracting in an effort to combat tax evasion and ensure employers cover benefits. While the measure helped to boost formal hiring, it hit the string of service companies dedicated to labor outsourcing. The country also saw a jump in coronavirus cases in August, leading to an unexpected contraction of economic activity that month.
The services sector shrank 0.6% in comparison to the previous three-month period, while the agriculture and the manufacturing sectors grew 0.7% each.
Falling activity and a lingering negative output gap will not prevent the central bank from increasing rates amid worrisome inflationary pressure, but reduce the probability of policy makers accelerating the tightening pace or extending it significantly above interests that are consistent with a neutral rate.”