Mexican economic growth likely accelerated in Q1

Mexico’s economy is likely to have had a near-trend growth in the first quarter, despite the deceleration in industrial production in March and continued strength of services that are due to consumption growth led by low inflation, according to Societe Generale.

“We estimate the economy to have grown 0.7% qoq (2.6% yoy) in Q1 as against our GEO forecast of 0.6% qoq (2.3% qoq annualized)”, said Societe Generale in a research note.

The first quarter of 2016 has recorded growth in electricity, construction and water and gas sectors and a rebound in manufacturing sector as compared to most of 2015. Moreover, the solid contraction phase in the mining sector is almost over. Even if the mining sector does not considerably contribute in 2017, it will continue to aid overall IP growth to remain at stronger levels than the ones seen in 2015, added Societe Generale.

But on the demand side, the scenario is not that bright except the consumption growth led by low inflation. Growth in investment is set to slow down slightly as growth in export has been unsuccessful in keeping pace, given the fading growth expectations for the US for 2016. Moreover, fiscal conservatism, due to lower oil prices, is resulting in limited government spending.

Overall, even if the Mexican economy continues to expand at its trend rate, the earlier growth positivity has not materialized fully, noted Societe Generale.

“Diminishing US growth expectations have led us to cut growth forecast over the past year and we fail to see strong upside risk to our 2016/2017 growth forecasts of 2.4% and 2.5%, respectively”, said Societe Generale.