Economy slows sharply in Q4

GDP expanded 0.1% on a seasonally adjusted quarter-on-quarter basis in Q4 according to a flash estimate (Q3: +1.1% s.a. qoq), undershooting market expectations of 0.4% and marking the weakest outturn since Q3 2021. On an annual basis, economic growth waned to 2.4%, compared to the previous period's 3.3% growth. Despite the disappointing Q4 data, the economy still recorded 3.2% annual growth over 2023 as a whole, which should have been well above the Latin American average.

Q1’s GDP reading reflected a sharp fall in primary-sector activity, stable industrial activity and a small uptick in services. More detailed data for individual subsectors will be released in February.

Looking to Q1 2024, economic activity growth should pick up from the surprisingly weak Q4 2023 showing. Over 2024 as a whole, Mexico should continue to outperform the Latin American average, albeit by a lesser degree than in 2023.

On the outlook, Itaú Unibanco analysts said: “We expect activity to continue to grow at an above trend growth of 2.8% [in 2024,] supported by an expansive fiscal stance. Benefits from nearshoring may also support activity this year.” Goldman Sachs’ Alberto Ramos said: “Going forward, real activity is likely to face headwinds from high interest rates, a positive labor and output gap (limited slack in the economy), 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 firm credit flows, robust labor market backdrop (including solid formal job creation and generous minimum wage increases), moderating inflation, and an expansionary budget. Furthermore, private investment is likely to benefit from near- friendly-shoring dynamics.”

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