Deeper economic slump in Mexico piles pressure on central bank

Nov 25 (Reuters) – Mexico’s economy contracted 0.4 percent in the third quarter, receding twice as much as previously thought and making the central bank’s job harder as it juggles record inflation, a weak peso, and leadership changes.

The number released on Thursday by official statistics agency INEGI was an adjustment from previously published preliminary data that showed a smaller 0.2% contraction in the quarter. A Reuters poll forecast the final data would show activity shrinking 0.3%. read more

A nearly 1% contraction in tertiary activity, which includes services and transport, drove the slump, the INEGI data showed.

Service sector activity slowed during the summer from a resurgence in the coronavirus while global supply chain disruptions have weighed on a recovery in manufacturing, notably in carmaking. read more

Secondary activity, which includes factories, rose 0.3%, less than the 0.7% print in preliminary data.

The deeper dent to growth could quieten calls for the Banco de Mexico, the country’s central bank, to move more quickly to control inflation with a bigger interest rate increase at its next policy meeting in December.

Mexico’s central bank has a single mandate, to fight inflation, but often mentions economic growth in its policy meeting notes. The bank is also grappling with uncertainty about its next governor after President Lopez Obrador ditched his first pick and chose instead a lesser-known economist.

Banxico has slowly but steadily tightened rates in recent months in a so-far unsuccessful fight against the pace of price rises, which hit a 20-year record in the first half of November.

Mexico’s peso is another consideration for the bank and on Wednesday was at its weakest against the dollar since February.

Reporting by Miguel Angel Gutierrez, Ricardo Figueroa and Marion Giraldo; Writing by Frank Jack Daniel; Editing by Kirsten Donovan

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