Mexico’s industrial production continues to grow at sluggish pace; domestic demand growth unlikely to accelerate

Mexico’s industrial production is expanding at a sluggish pace in 2016. Growth in industrial output has averaged at 0.9 percent in 2015-2016, as compared with 2.6 percent in 2014 and average expansion of 1.6 percent since 2004. Manufacturing growth, which constitutes almost half of overall industrial production, dropped to 2.4 percent in 2015-2016 from 4.2 percent in 2014.

However, in the last one year-and-a-half, manufacturing growth has not moved beyond its historical average range. Also, the additional weakness in the overall industrial production currently shows a severe contraction in activities of mining after the oil price collapse, said Societe Generale in a research report.

But manufacturing sector growth is quite connected to the Mexico’s exports demand, mainly from the US. Also the slowing of the US growth outlook in the last year has also resulted in deceleration of manufacturing in Mexico.

Mexico’s industrial production is expected to have grown 0.8 percent year-on-year after certain recovery in manufacturing but decelerating growth in utilities and construction, stated Societe Generale. Given that the global and US growth outlook continues to be uncertain and that the Bank of Mexico has hiked interest rates by 100 basis points in 2016, domestic demand growth in the country is not expected to quicken in the future.

Mining sector is expected to improve, gaining from the base effect. However, other sectors are expected to expand at a weaker rate. Mexico’s industrial production is unlikely to face an immediate contraction, especially if exports grow stronger. But the upbeat view of a solid growth in industrial production this year is effectively over, according to Societe Generale.