Mexico: Economic growth edges down in Q2
GDP expanded 0.9% on a seasonally adjusted quarter-on-quarter basis in Q2 according to a flash estimate (Q1: +1.0 s.a. qoq), beating market expectations. On an annual basis, economic growth waned to 3.5% in Q2, compared to the previous period’s 3.7% growth. Q2’s reading marked the softest expansion since Q2 2022.
The services sector grew 1.0% over the previous quarter in seasonally-adjusted terms in Q2, decelerating from the first quarter’s 1.5% increase. Services activity was likely aided by low unemployment, and strong wage growth, remittances and tourism. Meanwhile, the industrial sector gained steam, growing 0.8% in Q2 (Q1: +0.6% s.a. qoq), aided by the normalization of global supply chains and firms reshoring production from Asia to Mexico to be closer to the vast U.S. market. The primary sector grew 0.8% in Q2, contrasting the 2.8% contraction recorded in the previous quarter.
Looking ahead, the Consensus is for the economy to lose steam in both year on year and quarterly terms in Q3, though Mexico’s economic growth should still markedly outperform the Latin American average over 2023 as a whole.
On the outlook, Itau Unibanco’s Julio Ruiz said:
“We expect activity to soften in the 2H23 given our call of an expected slowdown in the U.S. economy and amid a tight monetary policy stance.”
Goldman Sachs’ Alberto Ramos took a similar view:
“The economy showed significant resilience during 1H2023 but diminishing returns from covid normalization, cost-push pressures, tight domestic and external financial conditions, moderating external demand, policy and regulatory uncertainty in key sectors (e.g., oil & gas, electricity, mining), and soft business confidence are likely to weigh on the broad economy in the quarters ahead.”