Mexico: Economy records quickest upturn since Q3 2022 in Q3
According to a preliminary reading, GDP growth rose to 0.9% on a seasonally adjusted quarter-on-quarter basis in the third quarter from 0.8% in the second quarter. Q3’s reading marked the best result since Q3 2022 and was slightly above market expectations. On an annual basis, economic growth lost steam, cooling to 3.3% in Q3, following the previous quarter’s 3.6% increase.
The services sector grew 0.6% over the previous quarter in seasonally-adjusted terms in the third quarter, decelerating somewhat from the second quarter’s 0.7% increase and marking the slowest growth since Q4 2022. Meanwhile, the industrial sector gained steam, growing 1.4% in Q3 (Q2: +1.2% s.a. qoq), likely supported by nearshoring by firms looking to locate production closer to the U.S. market. Primary sector growth accelerated to 3.2% in Q3, from the 0.7% increase in the prior quarter.
The economy should slow in Q4 but will continue to record growth in annual and quarterly terms. Moreover, over 2023 as a whole, GDP growth should be well above the average for Latin America.
On the outlook, Goldman Sachs’ Alberto Ramos said:
“Real activity is likely to face headwinds from high interest rates, […] policy and regulatory uncertainty in key sectors (e.g., oil & gas, electricity, mining) and moderating external demand. On the positive side, household spending is likely to continue to benefit from robust workers remittances, firmer credit flows, robust labor market backdrop (including solid formal job creation and generous minimum wage increases) and moderating inflation. Furthermore, private investment seeing is likely to benefit from strong construction activity, levered in part by near- friendly-shoring dynamics.”
On nearshoring prospects, against a backdrop of June 2024 general elections, EIU analysts said:
“We expect Mexico to continue to actively encourage nearshoring-related investment, on the assumption that [Morena party candidate] Ms Sheinbaum wins the election. […] We maintain our view that nearshoring-related investment will be a key contributor to FDI, which we expect to rise by 3% year on year in 2024. We expect the next administration, led by Ms Sheinbaum—our baseline forecast—will adopt a less mistrustful approach to the private sector and the US, which will further encourage nearshoring investment in manufacturing.”