Mexico’s economic growth likely to have accelerated to 2.5 pct in November

Mexican economic growth is expected to have rebounded sharply in November; however, the outlook continues to worsen. Exports and industrial production have recovered strong, and thus the economic growth is likely to have accelerated to 2.5 percent year-on-year in November from October’s 1.2 percent in October, said Societe Generale.

This suggests that unless things worsened considerably in December, the Mexican economy is likely to have grown at slightly below trend pace in the December quarter. While the increase in oil prices and the severe weakening of peso is expected to contribute to the competitiveness of export, boosting manufacturing and growth, the decline in financial conditions might more than counter the gains from the weakening of Mexican peso.

Furthermore, the outlook of trade continues to be under a cloud and would surely have a deep effect on  the nation’s growth potential, depending on what changes would be made to the U.S. trade policy by Trump’s new administration.

Given that the medium-term trade outlook is deteriorating, investment growth is not expected to accelerate strongly in the remainder of this cyclical expansion.  Furthermore, consumer confidence has dropped while purchasing power is expected to also be impacted by the prospect of higher inflation on the back of a weakening currency.

“Therefore, although stronger fiscal spending in the US could help resurrect Mexican growth to some extent, the medium- to longer-term outlook will deteriorate unless US trade policy uncertainty recedes (and favourably)”, added Societe Generale.