Mexican industrial production likely returned to sluggish growth in August

Mexico’s industrial production is expected to have returned to sluggish growth in August. The 1 percent year-on-year decline in industrial production was set off by a drop in the manufacturing segment that accounts for almost half of industrial production. Prior to this first reading for the third quarter, industrial production had been widely following the trajectory in the second half of 2015 when moderate manufacturing growth was slightly countered by declining mining production, which accounts for a bit less than one quarter of industrial production.

In 2016, mining production has come under pressure again its trend has declining in the last two to three months. Construction sector growth has also eased slightly in the past 12 months before declining marginally in July 2016. All these factors are symptomatic of an economy expanding quite below its trend.

The trade data for August and the rise in manufacturing PMI imply that production in manufacturing might have rebounded this month. Furthermore, manufacturing PMI came in the expansionary territory again in September. This shows the probability of a rebound in export demand from the U.S. and in manufacturing production, said Societe Generale in a research note.

“For the month of August, we expect IP to have grown at 0.3 percent yoy (0.3 percent mom as well). Broadly, US-led export demand will continue to be key for manufacturing growth, with the outlook dependent on the US economy”, added Societe Generale.

The U.S. political discourse might have considerable impact on Mexico for trade and manufacturing growth in the medium term to longer term. If oil price remains low and if investment in  the mining sector stays subdued, the domestic sector would not be able to lift the overall industrial production growth from the current weak levels unless manufacturing strengthens, according to Societe Generale.