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Mexico GDP Q2 2021

Mexico: Economy gains steam in Q2

According to a preliminary reading, GDP bounced back, expanding 19.7% year-on-year in the second quarter, above the 3.6% contraction seen in the first quarter. The economy benefited in Q2 from a decline in Covid-19 cases and strong activity in the U.S. However, supply constraints—in particular semiconductor shortages in the automotive sector—likely held back momentum somewhat, and the headline GDP reading was flattered by the highly favorable base effect.

The services sector grew 17.1% annually in the second quarter, contrasting the first quarter’s 4.0% decrease. In addition, the industrial sector grew 28.2% in Q2 (Q1: -2.7% yoy). Primary sector growth improved to 6.7% in Q2, from the 2.8% increase logged in the prior quarter.

On a seasonally-adjusted quarter-on-quarter basis, economic growth gathered momentum, rising to 1.5% in Q2, following the previous period’s 0.8% increase.

Looking forward, the economy should continue to recover in H2 as external demand—particularly in the U.S.—rebounds and the vaccine rollout continues at home. However, risks stem from the recent surge in domestic Covid-19 cases, tighter monetary policy and an uncertain business environment as the president aims to strengthen the role of the public sector in the energy market.

On the longer-term outlook, economists at the EIU were fairly downbeat:

“Real GDP will not recover to its 2018 level until 2023. There are several unique factors weighing on the country’s growth prospects. First, the lack of robust fiscal support measures for consumers and businesses in 2020–21 will cause permanent income losses. In this environment, business activity will struggle to return to pre-pandemic levels promptly, with knock-on effects for private consumption amid slow job growth. Moreover, the government’s erratic stance towards private investment will continue to weigh on investor confidence.”

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