''Bad news'' for Mexico's economy as it shrinks in August

By Anthony Esposito

MEXICO CITY, Oct 25 (Reuters) - Mexico's economic growth decelerated in August, dragged down by primary activities such as farming, fishing and forestry, as well as tertiary activities, which include services and retail, data from the national statistics agency INEGI showed on Monday.

Economic activity slipped 1.6% in August from July in seasonally adjusted terms, as primary activities decreased 2.4% and tertiary activities fell 2.5%, according to the data.

"This is bad news," Bank of Mexico Deputy Governor Jonathan Heath said on Twitter.

Secondary activities, which encompass factory output, mining, construction and energy generation, transmission and distribution, rose 0.4% in August from July in seasonally adjusted terms.

Economic activity expanded 4.3% from August of 2020, the non-seasonally adjusted figures showed.

"Going forward, supply-chain frictions, cost-push pressures, lingering policy uncertainty, and weak business confidence are likely to weigh on the broad industrial sector for a while despite still-firm external demand," Goldman Sachs economist Alberto Ramos said in a research note.

Ramos said Mexico's economy is expected to continue recovering during the second half of the year, supported by firm terms of trade and progress on the COVID-19 vaccination campaign and related normalization of activity among a number of still-lagging sectors.

"However, high and sticky inflation, rising interest rates, and sluggish credit flows add near-term downside risks to activity," Ramos said.

Hammered by the restrictions brought about by the pandemic, Latin America's second-largest economy suffered its steepest recession last year since the Great Depression of the 1930s.

"This means that if GDP didn't grow in September and if no new revisions are made, we may see a quarterly contraction of GDP," Banco Base analyst Gabriela Siller said in reference to the data.

Statistics agency INEGI will publish preliminary third-quarter gross domestic product data on Friday. (Reporting by Anthony Esposito; editing by Barbara Lewis and Mark Porter)

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