Mexico Economic Activity January 2018


Mexico: Economic activity growth regains some momentum in January

March 23, 2018

Economic activity data for January suggests the economy bottomed out in the last quarter of last year, with a pick-up in economic activity growth pointing to a moderate turnaround in the first leg of 2018. The monthly proxy GDP figure produced by the National Statistics Institute (INEGI) showed a 2.1% expansion in annual terms in January, which was above the 1.1% increase recorded in December and marked the fastest rise since last August.

Stronger growth in the headline figure largely reflected improved dynamics in the secondary and tertiary sectors in January. The industrial sector recorded its first year-on-year expansion in five months in January, rising 0.9% after a 0.7% contraction in December. January’s expansion was also the highest since last March and reflected improved manufacturing output and higher construction activity, both of which offset another decline in mining and quarrying activities. The decline in the latter, however, was the smallest in over a year.

The services sector also performed notably better in January, recording a five-month high expansion of 2.9% (December: +1.9% year-on-year). Healthier activity growth was mostly centered around consumption- and export-related components, with activity in wholesale and retail trade both picking up markedly and growth in transport-related services regaining some traction. These outweighed decelerations in most other sub-sectors, including financial services and healthcare. On a weaker note, activity in the primary sector recorded a 0.7% contraction in January, contrasting the 2.1% expansion recorded in December.

Month-on-month data paints a bleaker picture of the Mexican economy in the first month, with activity down 0.7% in sequential terms in January. Other high-frequency indicators had already pointed to a potentially weak outturn, including subdued manufacturing exports in January. However, robust factory output in the U.S. should see month-on-month activity rebounding in February. Similarly, decelerating inflation and a tight labor market is expected to gradually lift activity in consumption-related sectors, which bodes well for overall activity growth.

The Central Bank (Banxico) expects the economy to grow between 2.0% and 3.0% in 2018 and between 2.2% and 3.2% in 2019. Our panel expects the economy to grow 2.2% in 2018, which is unchanged from last month’s forecast. Looking further ahead, GDP growth is projected to pick up to 2.3% in 2019.

Author:, Economist

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