Mexican economy to remain constrained in 2016, further rebound in industry may reverse negative sentiments

Mexico’s industrial production fell in February by 0.1%. But the manufacturing sector of the country grew by a solid 0.5%. Construction sector drove the weak industrial production data. Construction activity had increased sharply by 3.8% in January on a sequential basis, but dropped 2.5% in February. This led to the overall fall in the number of industrial production.

But the pull down in the numbers was not just due to the construction sector, mining output also dropped 0.2%. In January, mining output, along with the construction sector had helped in the overall industrial output to grow 1.1%. However, the mining sector was unable to continue with its positive performance. On the other hand, public utilities sector performed quite strongly in February. It grew 1.2%, assisting in countering the negative effect from mining and construction.

Meanwhile, the manufacturing sector, which is a key sector for Mexico, bolstered in February, growing 0.5% in the month after falling 0.1% in the prior month. The manufacturing index of Mexico tracks manufacturing sector movements in the US and in certain other bigger manufacturing nations globally. Even if it is very early to conclude that the manufacturing output is close to improvement, the recent rebound is a positive sign. Moreover, intermediate inputs’ imports of Mexico expanded for the first time in seven months on an annual basis. Meanwhile, capital goods imports also grew in February on an annual basis.

However, the Mexican economic activity is likely to remain constrained in 2016, according to Wells Fargo. But additional recovery in the industrial sector might assist in reversing negative sentiments on the total performance of Mexico’s economy in 2016, added Wells Fargo. There needs to be some strong demand for automobile in the US and constant recovery in manufacturing production for an improvement in expectations, noted Wells Fargo.