Mexican economy likely to have expanded at slower pace in May

Mexico’s economic activity is likely to have grown at a slower rate in May. In 2016, growth in industrial production has been largely fluctuating at a low level in 2016. It expanded 0.4 percent year-on-year in May, slower than the 12-month average rise of 0.8 percent. Therefore, the Mexican economic activity is expected to have grown at a slower pace of 1.7 percent year-on-year in May, even if still signifies a rebound from a sharp drop in April on a sequential basis, noted Societe Generale in a research report.

However, this is probably still not sufficient to save the Mexican economy from shrinking in the second quarter for the first time on sequential basis since the first half of 2013. This also signifies certain risk on the downside to the 2016 growth forecast, stated Societe Generale.

In recent years, the correlation between economic activity and industrial output has weakened due to the service sector’s larger role, especially because of lower inflation led rise in consumption in the past few quarters.

But the medium-term growth outlook still relies heavily on the manufacturing sector’s strength, according to Societe Generale. The outlook, on the demand side is weak. Growth in investment is likely moving towards a mild slowdown as growth in export has been unsuccessful in keeping pace given the drop in US growth expectations for 2016.

Government spending is limited because of fiscal conservatism, thanks to lower oil prices. Overall, even if the Mexican economy is expanding at its trend rate, the earlier upbeat expectations for growth have not yet materialized fully, said Societe Generale.