The economic development of Mexico experienced a deceleration beyond expectations in Q2 of 2024. According to initial figures from Mexico’s national statistics agency, the GDP increased by only 0.2% compared to the prior quarter. This represents the most pessimistic forecast from a Bloomberg economist survey.
In comparison to a year earlier, GDP grew by 2.2% during this quarter. This figure also came in below the median estimate of 2.4%. Projections indicate that Mexico’s economy will decelerate for a third consecutive year in 2024.
Forecasts suggest a continued slowdown into 2025, marking a fourth year of decline. Nonetheless, heightened government expenditures ahead of the June national elections provided some growth support. The agriculture sector saw a decline of 1.7% this quarter due to severe droughts that affected both production and pricing.
Both manufacturing and services recorded minimal increases of 0.3%. “The overall weakness was quite extensive,” remarked Kimberley Sperrfechter, an emerging markets expert with Capital Economics. She anticipates a 1.5% expansion in activity this year, which is below the average expectation of 2% according to a Bloomberg survey.
Economic Performance of Mexico’s Q2
Previously, domestic demand had invigorated the economy as consumer spending remained robust. However, diminishing performance in the US, Mexico’s largest trade partner, had a negative impact on exports.
The peso also experienced instability and depreciated following the elections in June. Banco de Mexico maintained interest rates at 11% during its latest decision in June. Economists are split on whether a reduction of 25 basis points will occur in August or if the rates will remain unchanged until September.
Since March, inflation has been rising; however, certain board members of the central bank noted that the inflationary pressures were primarily in the non-core components. “While growth was somewhat disappointing, it doesn’t necessarily indicate an impending recession,” stated Brendan McKenna, a strategist at Wells Fargo. “Mexico remains on track for approximately 2% growth this year, so I doubt this will significantly impact the forthcoming rate decision.”
Governor Victoria Rodriguez mentioned that the board is receptive to ongoing discussions regarding rate reductions.
In June, one board member voted in favor of a quarter-point decrease, suggesting that others might also support a rate cut. A recent survey by Citi indicated that economists predict the key rate will likely shift in August and finish 2024 at 10.25%. They also project growth rates of 1.9% for 2024 and 1.5% for 2025, with inflation expected to decline to 4.4% by the end of the year.
“Board members have pointed out the country’s economic frailty, and this information bolsters our argument for a 25bp reduction,” stated Gabriel Casillas, managing director at Barclays Capital Inc.
