GDP growth ticks up in the first quarter

According to a preliminary estimate, GDP growth picked up to 0.2% on a seasonally adjusted quarter-on-quarter basis in the first quarter, from 0.1% in the fourth quarter of last year. The still-fairly-limp Q1 growth reading was due to a large fall in output in January. On an annual basis, economic growth slowed markedly to 1.6% in Q1, from the previous quarter's 2.5% increase. Q1's reading marked the softest expansion since Q1 2021.

In Q1, contractions in the primary and second sectors were more than offset by an expansion in services. Primary activity could have been dampened by a severe drought, and secondary activity by the strong peso hurting export competitiveness. In contrast, the services sector benefited from strong remittances, employment, wages and tourist arrivals.

Our Consensus is for GDP growth to pick up in sequential terms later this year, spurred by rate cuts from the Central Bank.

On the outlook, Itaú Unibanco analysts said: “Our GDP growth forecast of 2.8% for 2024 has a downward bias given a soft 1Q24. However, we note that the soft 1Q24 GDP was mainly due to the weak monthly GDP print in January, while the February activity figure expanded at a strong pace, and March is likely to expand further.” Goldman Sachs’ Alberto Ramos said: “Going forward, real activity is likely to face headwinds from high rates and declining workers’ remittances in local currency (a reflection of MXN appreciation). On the positive side, household spending is likely to continue to benefit from still firm credit flows, robust labor market backdrop (including solid formal job creation and generous minimum wage increases), moderating inflation, and an expansionary budget.”

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