Services sector is supporting Mexico's economic growth

The Mexican economy grew 0.4% q/q sa on the back of a good services performance (0.5%). This was partially offset by the expected contraction in industrial activities (-0.2%). In annual terms, the economy grew 2.5% y/y. Transport and commerce services drove the result, by expanding 3.0% and 4.7% y/y, respectively, which together account 20% of total GDP. 

Barclays said in a report - "The report comes in line with our 2.6% y/y growth forecast for the full year. We are expecting the economy to expand 0.9% q/q sa in Q2 on the back of a recovery in exports - in line with stronger US growth - and stronger demand derived from electoral spending."

The industrial sector is still facing headwinds. Oil production contracted 5.3% m/m sa in April, which might not be fully offset by manufacturing, as car production increased only 1.9% m/m sa. 

"Since the report is in line with our expectations, we still believe that Banxico will remain on hold next June 4." - adds Barclays