Weakness in Mexico's industrial production is temporary

The mining sector continues to be a significant drag on IP growth, while construction sector growth has also slowed slightly this year (compared with the H2 14 levels). As a result, industrial production is growing at around 1% this year compared with 2.2% in H2 14. There is also weakness in the manufacturing sector, although it is not as visible as in other sectors. One of the reasons for this is the continued surge in real exports (notwithstanding the decline in dollar terms), supported by the still-healthy outlook for the US economy (despite the slowing down in Q3). 

"In general, we remain optimistic about the shape of the US economy, which in turn also means that we do not see the current slowdown in activity in Mexico persisting beyond one to two months", says Societe Generale.

Beyond industrial production, the supply side economy is doing much better, as both the agriculture and services have probably accelerated (as derived from the monthly economic activity index). Recent weakness apart, the manufacturing improvement since last year has been largely driven by strengthening US growth and a jump in vehicle exports. Mexico's real export growth has surged impressively. 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 Q4 15 and beyond, boosting the rest of the economy via the investment, employment, wage and sentiment channels", added Societe Generale.