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Mexico’s factories edge towards growth after 17-month contraction By Reuters

© Reuters. FILE PHOTO: People walk past a building undergoing construction in Mexico City, Mexico January 30, 2020. REUTERS/Andres Martinez Casares

MEXICO CITY (Reuters) – Mexico’s factories showed tentative signs of a recovery in July, deteriorating at their slowest pace in the current 17 month-on-month string of contractions, a survey showed on Monday.

The IHS Markit Mexico Manufacturing Purchasing Managers’ Index rose to 49.6 in July from 48.8 in June, the highest reading since February 2020 and marginally below the 50 threshold that separates growth from contraction.

The index has been clawing its way higher gradually after plummeting to 35.0 in April 2020 amid the fallout from the coronavirus pandemic, in what was by far the lowest reading in the survey’s 10-year history.

“It is encouraging to see the headline PMI stir closer to the critical 50.0 threshold and some reports of rising sales among Mexican manufacturers,” said Pollyanna De Lima, economics associate director at IHS Markit.

Some firms indicated that production fell due to raw material shortages, the pandemic and low sales, but the drop was curbed by rising output at companies that noted increases in new projects.

“The sector was again impacted by bottlenecks at global logistic firms, with raw material shortages and delivery delays leading to rising backlogs of work, declines in stocks and a substantial increase in overall input costs,” De Lima said.

According to the survey, businesses turned more optimistic regarding the 12-month outlook for production, with the overall degree of confidence at the strongest level in 1-1/2 years and firms anticipated a pick-up in sales and improved raw material availability.

Job losses were also the slowest in 1-1/2 years.

Mexico’s President Andres Manuel Lopez Obrador in mid-June forecast that the economy would reach pre-pandemic levels by the third quarter of this year, after gross domestic product contracted by some 8.5% last year.

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