Retail sales likely grew on annual basis in Mexico; consumption growth expected to slow in H2

Mexico is expected to have recorded a growth in retail sales in May on year-on-year basis. According to a Societe Generale research report, retail sales are likely to have grown 6.8 percent year-on-year in May. Last year, retail sales rose at a solid pace of 5.1 percent, owing to the previous year’s low base effect and sharp low inflation. This trend has played up sharply in the first quarter of 2016 when retail sales accelerated 7 percent year-on-year as inflation continued to ease.

The impact of the outsized jump in March of 3.2 percent month-on-month resulted in certain moderation in retail sales in April on month-on-month basis. Given that the inflation is low, retail sales number trend is expected to keep surprising on the upside in the second quarter, stated Societe Generale.

However, on a seasonally adjusted month-on-month basis, retail sales are expected to have declined again by 0.2 percent. In all, this suggests that even if consumption growth continues to be on a solid path at present, it is expected to decline slightly on sequential basis in the second quarter, said Societe Generale.

Keeping the recent movements aside, declining consumer sentiment and accelerating inflation is likely to finally result in lower consumption growth in the second half of this year. After the impact of low inflation subsides in 2016, acceleration in private consumption would require help from the labor market.

If economic growth weakens because of lower exports and subdued investment growth, and the labor market stagnates, consumption is expected to be impacted adversely when inflation comes to normal levels, noted Societe Generale.