But it is not only this sector: economic activity began the year showing signs of cooling, suggesting a collapse of the primary sector, according to the information released by INEGI.
This year started badly in economic terms for the construction sector in Mexico due to a lack of investment. The value of output by construction companies fell 4.1$5 monthly in January in seasonally adjusted terms, thus breaking a streak of three growth periods. The decline is the sharpest since the same month in 2012, the last year of the government of former president Felipe Calderón, when it fell 4.5%. (In January 2018, the last year of former president Enrique Peña Nieto, the drop was 2.8%).
Meanwhile, in year on year terms, there was a 26.5% growth.
Based on the results of the National Survey of Construction Companies (ENEC) of the National Institute of Statistics and Geography (Inegi), construction related to transportation and urbanization (30% of the total and are mainly executed with public investments) dropped 5.9% monthly, after rising by 4.5% in December.
These works are led by railways (basically the Mayan Train, where section 4 was inaugurated in December, and sections 6 and 7 are advancing at a slower pace) and by highways, roads and bridges.
As part of the complex moment that the industry is undergoing, in the first week of January the federal government the 2024 highway reconstruction and conservation program in its entirety. This program budgeted 11 billion pesos and had started a tender process so that the winning construction companies would start working as soon as possible and, thus, avoid the rainy season. It has been reported that military engineers will carry out this construction task in the southeast of the country.
Meanwhile, works in "other construction" (with a 12% share, mainly involving installations in buildings and auxiliary works with public resources), decreased 9.2 percent.
For its part, the value of production by companies dedicated to building works (which contributed 39.7% of the total in January and are mainly related to industrial, commercial and service buildings and housing) fell 3.9%, after 20 consecutive months of positive growth that awakened enthusiasm in the sector.
GUIDE ASKS FOR MORE INVESTMENT
The negative results were transferred to jobs. “In January 2024 and with data adjusted for seasonality, the total employed personnel fell 1.8%, hours worked fell 2.6%, and real average remunerations, 0.2%, monthly,” detailed Inegi. In annual comparisons the figures were positive: 1.5%, 2% and 3.2%, respectively.
The January drop in the output of firms in the sector had been alerted by the private sector. In a recent document, the Mexican Chamber of the Construction Industry (CMIC) says the sector is sensitive to general economic evolution.
In particular, it continues, it is highly sensitive to investment in infrastructure and financing (via loans and subsidies). For this reason, the production value of the construction industry reflects, to a large extent, the behavior of the levels of public and private investment in construction works carried out year after year.
The chamber had requested to raise public investment to 6% of GDP, but last year it barely represented 2.8%.
Furthermore, regarding the participation of the Secretariat of National Defense (Sedena) as a direct competitor, it was suggested that it “encourages a scheme of complementarity by exception, not by rule, of the Armed Forces in matters of construction, operation and maintenance of public works.” The Armed Forces must concentrate on their constitutional functions of defense and national security.”
For now, Luis Méndez Jaled, recently appointed president of the CMIC, said in one of his first statements that the country's infrastructure lag, the lack of planning and security issues are part of his agenda, because It is necessary to resume the course and generate employment.
THE ENTIRE ECONOMY WOULD BE AFFECTED
The (bad) news is not only from the construction sector. Throughout Mexico, economic activity began the year showing continued signs of cooling, according to Inegi data.
In the first month of the year, the Global Indicator of Economic Activity (IGAE) showed a contraction of 0.6% month to month. With this, the Mexican economy would not only report its fourth consecutive month of contractions, but it would also be the sharpest since August 2021, when it fell by the same magnitude.
“Despite lower economic activity at the start of 2024, it is important to remember that the IGAE registered historical highs during 2023. At the end of 2023 (quarterly figures), a lower pace of economic growth was already observed compared to previous periods, due to what we could say is inertia at the end and beginning of the year," Monex analysts highlighted.
In this sense, they added that it will be important to analyze the upcoming figures of economic activity and confirm they do not reflect a greater cooling, mainly in the tertiary sector. Likewise, the estimates of the Timely Indicator of Economic Activity (IOAE) will have to be analyzed. For January they had launched a projection of 0.1% monthly, followed by 0.3% growth in February.
"Everything seems to indicate that the actions of the Bank of Mexico (Banxico, central bank) must now consider a slight rebound in inflation and this drop of economic activity in an environment of greater consumption due to the electoral year," they added.
According to the estimate of the government of Andrés Manuel López Obrador, the Mexican economy is expected to grow 3% this year, once again driven by consumption. However, for some institutions and analysts this is optimistic and their estimates are between 2 and 2.5 percent.
“By 2024, Mexico's economic strength will continue. We expect growth of between 2.5 and 3.5%, exceeding the country's historical average for the fourth consecutive year,” said Gabriel Yorio, Undersecretary of Finance and Public Credit (SHCP) in recent weeks.
PRIMARY SECTOR COLLAPSES
Within Inegi's report, the overall economic contraction in January was mainly due to the double-digit collapse in the primary sector, as well as a milder contraction in tertiary activities.
In the case of primary activities, where agriculture, livestock, hunting, fishing, and similar activities are concentrated, the IGAE showed a contraction of 12.9% compared to last December, the largest drop on record since December 2007, when it was 16.2%.
"It is the worst monthly reading since December 2007, in line with the weakness in intermediate demand (food manufacturing) and external demand (exports) and with the atypical/severe droughts in some regions of the country,” indicated Alejandro Saldaña, deputy director of Economic Analysis of Go for More (Bx+).
Currently, several institutions and organizations point to meteorological phenomena, mainly drought, as one of the risks for the Mexican economy, a problem not only suffered in the country, as other parts of the world experience record temperatures.
In the case of the tertiary sector, which includes services, a monthly contraction of 0.5% was reported in January. Within this category, business support services and waste management, and remediation services fell the most, with a negative rate of 14.4% in January.
“The figures for the tertiary sector are striking, showing decreases in 9 of 14 of the items evaluated, mainly in business support services (-14.37% monthly), leisure services (-5.66%) and accommodation services (-3.66%)”, explained the Monex analysis.
All in all, there seems to be light at the end of the tunnel to some: secondary activities, which includes manufacturing, having grown 0.4%after reporting two consecutive months of monthly contractions. These activities rebounded after experiencing a weakening in the fourth quarter of 2023.
