Mexican economic growth likely to stay subdued at 1.6 pct next year, says Commerzbank

In the September quarter, the Mexican economy grew strongly by 1 percent sequentially on a seasonally adjusted basis, after contracting in the prior quarter. Services sector was the key driver of the economic growth. However, the economy is likely to post weaker growth again in the fourth quarter. Mexico’s leading indicators have come in mixed.

Consumer sentiment has increased slightly, although it remains at very low levels. Meanwhile, the manufacturing PMIs have come in slightly lower again recently. Moreover, sentiment in the Mexican economy is expected to be further depressed due to Donald Trump’s victory in the U.S. presidential election and the uncertainty regarding the future U.S. policy.

If Trump really intends to tinker with the free-trade agreement between the U.S., Mexico and Canada, there might be additional factor other than low oil prices that negatively impacts Mexico’s foreign trade. U.S is Mexico’s most important trading partner. It is unclear at the moment which of his announcements Trump would put into practice; however, the immigration of Mexicans and trade relations might be impacted at least to a certain degree, noted Commerzbank in a research report.

“Uncertainty in this regard and restrictive fiscal and monetary policies will probably impose a drag on the economy next year. For 2017 we therefore expect growth to remain weak at 1.6 percent”, added Commerzbank.

Meanwhile, in the past two years, depreciation of Mexican peso has had no second-round impacts on inflation until now. Consumer price have been moving in the central bank’s target corridor’s bottom half. Subdued economic growth and additional restrictive monetary policy is expected to restrict inflation pressure. Thus consumer price inflation in Mexico is likely to come in at 3.4 percent in 2017, a tad above Banxico’s target range.