Mexico: Economic growth dragged by industrial sector in Q2
August 20, 2015
Mexico’s GDP lost rhythm in the second quarter due to weaker growth in the primary and secondary sectors. GDP in Q2 expanded 2.2% year-on-year, which marked a deceleration over the 2.6% increase observed in the previous quarter. Nonetheless, the reading slightly overshot the 2.1% increase the markets had expected.
The slowdown in Q2 reflected the fact that growth in the agricultural and industrial sectors declined compared to the first three-month period of the year. Agriculture increased 2.7% annually in Q2, which was less than half the 6.7% expansion tallied in Q1. The industrial sector decelerated from a 1.5% increase in Q1 to a paltry 0.5% expansion in Q2. The deceleration in the industrial sector was broad-based, which reflected that growth in the manufacturing, construction and public utilities sectors was lackluster. In addition, activity in the mining sector decreased for the sixth consecutive quarter, mainly due to lower oil production.
Encouraging though was the mild acceleration seen in the services sector, which shouldered the weakness observed in industry. Services increased 3.1% in Q2, which was slightly above the 3.0% expansion observed in Q1. Growth in services was primarily supported by commercial activities.
Looking at sequential data, Mexico’s economic growth is still solid. GDP increased a seasonally-adjusted 0.5% in Q2 over the previous quarter, which was slightly above the 0.4% registered in Q1.
In August, the Central Bank (Banxico) revised Mexico’s growth forecasts and now expects the economy to grow between 1.7% and 2.5% this year (previous estimate: between 2.0% and 3.0%). The cut to the growth forecasts for this year reflected the Bank’s more pessimistic view of oil output, investors’ confidence, and an increase in volatility in the financial markets. For 2016, the Bank left its projections unchanged and sees the economy growing between 2.5% and 3.5%.
Author: Ricardo Aceves, Senior Economist