Mexican economy to have slowed in Q2, economy unlikely to maintain current growth pace in 2017

The Mexican economy is expected to have decelerated in the second quarter of 2016. Industrial production in June grew 0.6 percent year-on-year. Meanwhile, trade numbers came in weak in the month. However, a possible surprise on the upside in retail sales might suggest that the Mexican economic activity grew 2.1 percent year-on-year and 0.7 percent sequentially in June, said Societe Generale in a research report.

“On our forecast, therefore, the economy likely grew by 2.4 percent yoy in 2Q (-0.4 percent qoq on a seasonally adjusted basis)”, added Societe Generale.

These numbers are largely consistent with the preliminary second quarter GDP releases that indicated the Mexican economy shrinking for the first time on sequential basis since the first half of 2013. Furthermore, depending on the composition of demand, the second quarter moderation is seen as a risk on the downside to the 2016 growth projection of 2.6 percent, stated Societe Generale. A deceleration in investment during this time might imply that the economy is unlikely to continue with its 2016’s pace of growth in 2017.

Even if the correlation between economic activity and industrial production has softened in recent years due to the bigger role of the service section, the medium-term growth projection still relies heavily on the manufacturing sector’s strength.

On the demand front, the economic outlook, with the exception of low-inflation-led consumption growth- is sluggish. Growth in investment is possibly moving towards a mild slowdown, as growth in export has not been able to keep pace due to declining US growth expectations for 2016.

“In sum, while the economy is still growing at its trend rate (and continues to be the most robust economy in the region), our previous optimistic expectations for growth have not fully materialised”, noted Societe Generale.