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Mexico GDP Q2 2021

Mexico: Second estimate confirms the economy gained steam in Q2

According to a second reading, GDP bounced back, expanding 19.6% 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 27.9% in Q2 (Q1: -2.6% yoy). Primary sector growth improved to 6.7% in Q2, from the 2.3% 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 1.1% increase.

Looking to Q3, economic activity gained momentum in July according to a flash estimate from the statistical office. Over H2 as a whole, the economy should continue to recover 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:

“The economy will recover to its 2018 level […] in 2022. Despite improvements to the country’s economic outlook, there are several unique factors that will hamper the country’s growth prospects in 2021 and beyond. First, the lack of robust fiscal support measures for consumers and businesses in 2020–21 has caused permanent income losses. […] Secondly, the government’s erratic stance towards private investment will dampen investor confidence, taming the recovery in investment, which was already declining before the pandemic.”

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