Mexico: Economy defies fears of slowdown as it expands at fastest pace in six quarters
April 28, 2017
The Mexican economy shrugged off fears of a hard landing in activity after it rose by 2.7% in the first quarter of the year, according to a preliminary estimate released by the National Statistics Institute (INEGI) on 28 April. This represented a noteworthy improvement from the 2.4% expansion seen in the last quarter of 2016 and came in slightly above market expectations of a 2.5% increase. Although the calendar effect of Easter holidays had a positive impact this quarter, sequential data adjusted for seasonal patterns showed that GDP still increased a solid 0.6% over the previous quarter, which followed a 0.7% expansion in Q4.
According to INEGI, two key sectors drove overall economic activity in the first quarter. Agriculture rose a solid 6.9% annually in Q1, coming on top of a 6.4% expansion in Q4. Meanwhile, service-sector activities expanded 3.7% in Q1, slightly above Q4’s 3.4% expansion. The bleak note was once again lackluster activity in the industrial sector. Growth in industrial activity was 0.2% in the first quarter of the year, a minor improvement from Q4’s flat reading.
The first estimate for economic activity in Q1 suggests that the Trump shock may have been overstated. Indeed, strong growth in the services sector highlights the underlying strength of Mexican households, which do not seem to have felt the pinch of rising inflation as much as originally anticipated. On top of upbeat hard data, recent developments, including Moody’s decision to uphold Mexico’s A3 sovereign credit rating after having it on watch for a downgrade, are likely to assuage investors and policymakers’ concerns of an abrupt deceleration in Mexican economic activity. The outlook remains clouded, however, with Trump’s abrupt shifts on NAFTA assuring some degree of uncertainty and rising inflation turning real wage growth upside down.
Author: David Ampudia, Economist