Mexico retail sales growing at an impressive pace

Despite Mexico's growth weakness in H1 and the visible effect of the slowdown in the labour market, retail sales on average have continued to trend up this year, in part due to the low base effect in H1 2014 and partly due to lower inflation this year. 

"With June projection of 3.60% yoy in June or 4.1% yoy in Q2, retail sales growth will likely average a strong 4.7% yoy in H1 compared with 2.2% in H1 14 and 3.2% in H2 14. Sequentially however, retail sales growth will fall sharply to 1.1% qoq annualised in Q2 from 9.6% in Q1", says Societe Generale. 

The recent pace of retail sales is broadly consistent with the 2-4% yoy growth in private consumption spending although the correlation between retail sales and overall consumption growth is not quite strong enough. Strong sales growth in 2011-12 was not reflected in overall consumption, and more recently, consumption has lagged sales growth despite improving. 

"Going forward some moderation is expected  in retail sales until growth improves and the labour market strengthens. However, falling inflation presents some upside risk to sales growth and overall consumption", added Societe Generale.