Mexico GDP Q2 2017

Mexico

Mexico: Economic growth maintains upbeat momentum despite deceleration in Q2

July 31, 2017

The economy grew 1.8% in annual terms in the second quarter, which was in line with market expectations but marked a deceleration from Q1’s strong 2.8% expansion. The second quarter print was mainly the result of resilient activity in the services sector, which held up despite high inflation and a negative calendar effect related to the timing of the Easter holiday. In fact, sequential data adjusted for seasonal patterns showed that GDP increased a solid 0.6% over the previous quarter, just shy of the 0.7% expansion observed in Q1.

Service-sector activities did most of the work in the second quarter, expanding 3.2% from the same period of the previous year (Q1: +3.7% year-on-year). Although details were lacking, it is likely that private consumption held up better than originally anticipated, which in turn is expected to have benefited domestic-oriented services. In addition, the strong performance of manufacturing exports likely shored up activity among export-oriented service firms, a trend that is very probable to carry over into the third quarter.

Conversely, the industrial sector contributed negatively to growth, shrinking 1.0% in annual terms (Q1: +0.5% year-on-year). Industrial activity was weak for the most part in the second quarter, with the conspicuous exception of manufacturing output, which continued to shore up overall production on account of robust sales overseas. Meanwhile, agricultural output expanded 0.7% in year-on-year terms in the second quarter, marking a notable deceleration over the 6.6% increase recorded in the previous quarter.

The first estimate for GDP growth in Q2 was largely good news for the Mexican economy. Economic momentum seems to have proven resilient to political uncertainty in the U.S. ahead of NAFTA renegotiation talks, with a strong labor market and healthy remittances inflows shoring up household spending to an extent and the upcycle in global trade boosting demand for Mexican manufactured products. Although growth is expected to decelerate further heading into H2, the economy’s ability to withstand multiple shocks through the first half of the year has tilted the outlook to the upside.

Banxico expects the economy to grow between 1.5% and 2.5% this year. Next year, the Bank sees economic growth of between 1.7% and 2.7%. Economists raised their GDP growth projection for this year by 0.1 percentage points relative to last month’s forecast and expect the economy to grow 2.0% in 2017. Going forward, GDP growth is projected to pick up to 2.2% in 2018.


Author:, Economist

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