Mexico's industrial growth likely weakened further in May

Mexican trade data suggests industrial production likely weakened further in May, growing by just 0.8% yoy - the weakest growth in a year. This, however, still means that industrial output may have expanded in May on a sequential basis by 0.1% mom as against the contraction in April by nearly same rate. 

Industrial production suffered partly in Q1 15 as weather-affected lower US demand growth slowed manufacturing growth, while lower oil prices hit the mining sector . Despite recent weakness, the IP improvement since last year has been largely driven by strengthening US growth and a jump in vehicle exports.

Mexico's real export growth has surged impressively recently. The improvement in the competitiveness of exports - and, therefore, stronger investment growth - was achieved via lower wage growth in a weak labour market. 

Manufacturing and trade gains are expected to boost the rest of the economy via the investment, employment, wage and sentiment channels. Given the most recent US economic data releases, the Mexican industrial production slowdown may be temporary, although it could lead to the further downgrade of our growth expectations for Q2 and 2015.

"Improvement in IP growth through the remainder of this year should help the economy to grow close to its potential in 2015 and then to strengthen in 2016. Currently, the Mexican economy is expected to grow by 2.6% in 2015 and 3.2% in 2016" says Societe Generale.