The industrial production and economic activity releases suggest that growth likely slowed to 2.0% yoy in Q2 (0.6% qoq on a seasonally adjusted and sequential basis) even though activity growth improved to 2.2% yoy in June.
"While the supply side proxy puts Q2 growth at 2.1% qoq (annualised), we compute the demand side growth slightly higher at 2.4% qoq (annualised) - still significantly below our previous Q2 growth projection of 3.5%. This adds to the downside risk on our 2015 growth forecast of 2.6%," says Societe Generale.
While the supply side growth components will be released next week, the demand side data won't be available until early next month. Recent weakness apart, the IP improvement since last year has been largely driven by strengthening US growth and a jump in vehicle exports. Except for the past few months, Mexico's real export growth has surged impressively on average. The improvement in the competitiveness of exports - and, therefore, stronger investment growth - was achieved via lower wage growth in a weak labour market and should be helped by the weakening peso.
"We continue to expect stronger manufacturing and trade gains in H2 15, boosting the rest of the economy via the investment, employment, wage and sentiment channels," added Societe Generale.
Given the most recent US economic data releases and the surge in Mexico's manufacturing production in June, the Mexican industrial production slowdown may be temporary, although it could lead to a downgrade of the growth expectations for 2015. Improvement in IP growth through the remainder of this year should help the economy grow to its potential in H2 15 and then to strengthen in 2016. Currently, the Mexican economy is expected to grow by 2.6% (with considerable downside risk as discussed above) in 2015 and 3.2% in 2016
