Mexican economic activity likely to have expanded in April

Mexican economy is expected to have grown to trend in April, following slowdown in March. In April, Mexico’s industrial production rose to 1.9 percent from March’s -1.9 percent as all the segments recorded improved numbers. However, the mining sector continues to shrink.

“We estimate economic activity to have grown 2.7 percent yoy compared with 1.2 percent in March and the six month average of 2.4 percent”, said Societe Generale in a research report.

In recent years, the correlation between economic activity and industrial production has softened due to service sector’s larger role, especially because of the lower inflation led increase in consumption in the last few quarters. But the medium term growth outlook continues to rely very much on the manufacturing sector’s strength.

Apart from the rebound in manufacturing sector, other sectors such as electricity, gas, construction and water were also strong on average in 2016 as compared to most of last year.  Moreover, the phase of severe contraction in mining is almost over. If the mining sector does not considerably contribute in 2017, it will assist the overall industrial production growth to be at a strong level assuming growth in the U.S. and exports of Mexico do not decline, according to Societe Generale.

However, on the demand front the economic scenario is not that rose with the exception of consumption growth that is led by low inflation. Growth in investment is slowing down as export growth has been unsuccessful to keep up given the declining U.S. growth projections for 2016. Government spending is limited because of fiscal conservatism due to low oil prices. Overall, while the Mexican economy continues to expand to its trend rate, the earlier growth optimism has not materialized entirely.

“Diminishing US growth expectations have led us to cut Mexico’s growth forecast to 2.3 percent in 2017 even while the economy should grow 2.4 percent this year”, noted Societe Generale.