Mexico: GDP growth beats expectations in Q2
July 29, 2022
According to a preliminary estimate, economic growth was stable at 1.0% on a seasonally-adjusted quarter-on-quarter basis in the second quarter, beating market expectations. A recovery in the hospitality sector as the impact of Covid-19 faded at home and abroad, a reduced drag from last year’s labor outsourcing ban, and a low base of comparison—Mexico has still not recovered its pre-pandemic level of output—were likely all factors that supported the Q2 reading.
The services sector grew 1.0% over the previous quarter in seasonally-adjusted terms in Q2, decelerating somewhat from the first quarter's 1.3% increase. In addition, the industrial sector lost steam, growing 0.9% in Q2 (Q1: +1.2% s.a. qoq). In contrast, the primary sector rebounded, growing 0.9% in Q2, contrasting the 2.0% contraction recorded in the previous quarter.
On an annual basis, economic growth accelerated to 2.1% in Q2, following the previous period's 1.8% expansion.
Despite the upside Q2 surprise, our panelists are generally downbeat about economic prospects ahead. As analysts at the EIU said:
“Against the backdrop of darkening external conditions, we still believe that Mexico is heading for a slowdown of its own. Although it has the fiscal space to insulate consumers and business from the downturn, we consider it highly unlikely that the austerity-minded government led by the president, Andrés Manuel López Obrador, will offer meaningful support.”
Goldman Sachs’ Alberto Ramos painted a similar picture:
“Rapidly diminishing returns from the covid normalization, lingering supply-chain frictions, intense cost-push pressures, policy uncertainty, and soft business confidence, are likely to weigh on the broad economy. The economy still has room to grow, and we expect it to expand in coming quarters supported by firm terms of trade and further normalization of activity among a number of still lagging sectors, particularly services.”