Natural Disasters Hinder Mexico's Economic Growth This Year

Mexico City Earthquake Damage
Technicians watch as a building seriously damaged by the September 19 earthquake is demolished in Mexico City on October 17, 2017. Mexico's economy shrank more than previously expected, due to the impact of tempests and earthquakes in August and September. PEDRO PARDO/AFP/Getty Images

The natural disasters that struck Mexico last August and September left more than just material damages and human loss.

Mexican economy's third-quarter gross domestic product decreased 0.3 percent compared with the previous quarter this year—the first contraction in nearly two years—according to a report by the National Institute of Statistics and Geography. The economy grew 1.6 percent in the third quarter this year, whereas the same period in 2016 saw a 1.7-percent growth, Mexican website Expansión reported.

The economy shrank more than previously expected, due to the impact of tempests and earthquakes in Mexico's territory. "The [GDP] deceleration is largely explained by a temporary and limited impact from the natural disasters that affected the production of oil, as well as services related to education, tourism and entertainment," the Finance Ministry said in a statement.

A 7.1 magnitude quake hit Mexico City in September. Ronaldo Schemidt/AFP/Getty Images

Despite this economic setback, the Finance Ministry estimates a GDP growth in the 2-2.6 percent range by the end of this year. "Based on the economy's evolution and the available results, it continues to show that is resilient," Expansión cited the Ministry.

Mexico's Central Bank, however, is less optimistic. This week, the bank trimmed its growth forecast between 1.8 and 2.3 percent, Expansión said. In addition to natural disasters, other factors that could hinder Mexico's economic growth include the country's 2018 presidential elections, unpredictability of global markets and the stalled talks to renegotiate the North American Free Trade Agreement or NAFTA.

Earlier this week, Mexico, Canada and the U.S. failed to settle their differences during the fifth round of talks to rework the trade deal, Reuters reported. Both Canada and Mexico have rejected President Donald Trump's proposals regarding curbs on Mexican and Canadian agricultural products and stricter automotive content rules.

Trump has threatened to withdraw the U.S. from the trade bloc if it's not redrafted to better serve the country's interests, the news outlet noted. His hardline rhetoric has scared investors and is pushing Mexico to branch out its trade.

The Trump administration has also requested a stricter enforcement of minimum wage laws across the North American partners. Trump blames NAFTA for the loss of many American jobs due to Mexican cheap labor, which has attracted U.S. companies for years, CNN Money reported.

And today, U.S. based manufacturers might still be lured to Mexico's workforce. This week, the Mexican government agreed to raise the minimum wage from 80.04 pesos to 88.36 pesos ($4.70 at today's exchange rate) starting December 1. With the U.S. minimum wage standing at $ 7.25 per hour—12 times higher than Mexico's—America's southern neighbor will have the advantage to attract more businesses, CNN Money added.

However, a lack of progress in NAFTA talks and Trump's stricter demands might collapse the trade bloc in the future, Reuters said.