Mexico’s July industrial output likely grew at sluggish rate on manufacturing slowdown

Mexico’s industrial production is expanding at a sluggish rate as manufacturing softens due to subdued exports. In the first half of this year, industrial production growth in the first half averaged 0.7 percent, a tad lower than the average rate of growth in the second half of 2015. Both the figures are considerably weaker than the average witnessed in the past several years.

However, there were two significant differences in the two averages. Firstly, industrial output growth in 2016 was subdued because of a further slowdown in manufacturing growth and secondly, sectors that cater to domestic needs such as utilities and construction expanded faster in 2016.

Overall, subdued manufacturing production, resultant of weaker demand from the US, is driving down the industrial production growth, said Societe Generale in a research note. The other vital component, mining, continued to shrink at a considerable rate, especially in the second quarter of 2016. Mining might possible cease to be a drag on growth at certain point in 2017; however, it does not seem to be adding anything to growth unless the oil price outlook and demand rebounds significantly.

Industrial output growth is expected to have expanded 0.4 percent year-on-year in July, assuming additional slowdown in manufacturing, according to Societe Generale. U.S. led exports demand would be the key to manufacturing growth, and we might not see any considerable revival in it over the near to medium term, added Societe Generale.