Mexican economic growth likely accelerated on annual basis in August, but may have dropped sequentially

The Mexican economic growth is decelerating in spite of a likely rise in August. The considerable growth in trade and the modest growth seen in industrial production under the circumstances assist in estimating a rebound in the Mexcian economic activity. According to a Societe Generale research note, the Mexican economy is expected to have grown 1.9 percent in August as compared with 1.3 percent growth in July on a year-on-year basis. However, the index is likely to have dropped 0.1 percent sequentially on a seasonally adjusted basis.

If this is realized, it would be the first monthly fall in the economic activity since April and might indicate towards a decelerating economy. At present, the Mexican economy is expected to expand 1.9 percent this year and continue with a sub-trend growth of 2 percent next year, stated Societe Generale.

The second quarter demand-side data showed that the details were quite worse than the headline. Every component of external and private sectors shrank on a sequential basis in the second quarter, making government spending the only positive contributor to the growth. The Mexican government might have been compelled to give up its fiscal consolidation attempts, thereby adopting a counter-cyclical growth policy.

Fixed capital formation and exports also came negative on an annual basis, whereas the deceleration in the slowdown in consumption is unexpected given the constant improvement in the labor market in 2016 and the low inflation. Since the main factor driving down growth is slowdown in export-led investment, the incoming U.S. numbers and the political situation is being closely watched in order to measure the longevity of the current deceleration in Mexico.

The correlation between economic activity and industrial output has softened in recent years, but the medium-term growth outlook continues to be greatly dependent on the manufacturing sector’s strength that requires support from external demand.