Mexican manufacturing tumbles as price hikes bite

MEXICO CITY (Reuters) - Mexico's manufacturing sector declined in July, with demand for the country's goods hit by inflation after a long pandemic-driven downturn, a survey showed on Friday, despite hopes for a recovery.

The seasonally adjusted S&P Global Mexico Manufacturing Purchasing Managers' Index (PMI) fell to 48.5 in July from 52.2 in June.

Aside from a brief hiatus in May and June, Mexico's PMI has lingered below the 50-point threshold that separates growth from contraction since March 2020. It hit a record low of 35.0 in April 2020 during the initial enactment of the country's COVID-19 containment measures.

The data showed a July drop in factory orders and lower sales, with pressure from drought, input shortages and inflation.

The drop in manufacturing output also prompted a marginal drop in employment for the first time in four months.

"Companies are now reporting trepidation over their financials, a factor which restricted input buying and led to the non-renewal of temporary contracts," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Business confidence also dropped, with almost one-quarter of those polled predicting output levels would continue to fall in the coming 12 months, De Lima added.

"Solvency concerns, alongside supply-chain constraints, the war in Ukraine and acute price pressures stifled business confidence in July."

Mexico's central bank announced a record interest rate increase last month if an effort to control inflation, with more hikes expected.

(Reporting by Isabel Woodford; Editing by David Alire Garcia and William Mallard)

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