Wires

UPDATE 3-Mexico's economy shrinks for first time in 10 years, in blow to president

Dave Graham

president@ (Adds analyst quotes, comment from business leader)

MEXICO CITY, Jan 30 (Reuters) - Mexico's economy contracted for the first time in a decade last year, data showed on Thursday, as businesses reined in investment due to nagging uncertainty over the economic management of President Andres Manuel Lopez Obrador.

Adjusted for seasonal swings, Latin America's no. 2 economy contracted by 0.1% in 2019 after growth of just over 2% the previous year, according to a preliminary estimate published by national statistics office INEGI.

"Today's figures essentially confirmed that Mexico was one of the world's worst-performing large emerging markets in 2019," said Capital Economics in a note. "The carryover from the weak performance in 2019 will weigh on conditions this year."

Gross domestic product (GDP) was unchanged during the fourth quarter compared to the previous three months, INEGI said.

That, at least, was slightly better than the consensus forecast in a Reuters poll for a contraction of 0.1%. A final estimate for the quarter will be published on Feb. 25.

Mexico's economy struggled during the first year in office of Lopez Obrador, a leftist who promised to root out corruption and chronic inequality when he took office in December 2018.

Foreign investment has held firm in Mexico under his government, but domestic businesses have been more wary.

Gross fixed capital investment fell by 5.2% on the year during the first 10 months of 2019, according to figures published by INEGI this month.

Earlier this week, Carlos Salazar, head of Mexico's powerful CCE business lobby, told a news conference that "uncertainty" had eaten into domestic investment last year.

However, the U.S. ratification of a new North American trade agreement this month and the roll-out of major infrastructure projects augured more positively for 2020, he added.

Capital Economics agreed but was still downbeat, arguing that growth will be "much weaker than most expect" and forecast the economy would only expand 0.5% this year.

Lopez Obrador's decision to cancel a partly built, $13 billion new airport for Mexico City, and his retreat from the prior government's liberalization of the oil and gas industry, have stirred widespread concern about his economic stewardship.

The president argues the airport project was tainted by corruption, but business leaders were incensed by the decision. Lopez Obrador has pledged to deliver annual growth of 4%.

The last time the Mexican economy suffered an annual contraction was during the sharp recession that engulfed the country in 2009 in the wake of the global financial crisis.

A breakdown of the latest GDP figures showed that weakness in manufacturing had fueled the downturn.

Secondary activities, which include manufacturing, slipped by 1.7% last year. Primary activities such as farming, fishing and mining rose by 1.9%, and tertiary activities, which capture services, meanwhile advanced 0.5%, the data showed.

During the July-September period, the economy stagnated quarter-on-quarter and shrank by a tenth of a percentage point in each of the three prior quarters, INEGI said. (Reporting by Dave Graham Additional reporting by Sharay Angulo and Miguel Gutierrez Editing by Catherine Evans)