Economics: Aggregate demand data points to slowdown as services slow slightly and consumption of domestic goods remains stalled

MEXICO - Report 25 Jun 2024 by Mauricio González and Francisco González

First quarter aggregate demand and supply figures show demand expanded 2.6% yoy, down from the 3.7% pace of 2023. Private consumption, the weightiest demand component, grew 2.6% yoy in the quarter, after having risen 3.5% in 2023. This component’s performance varies considerably depending on the origin of the goods in question as consumption of domestic goods fell 1.2% at the same time as that of imported goods increased 20.8% yoy. This behavior has negatively impacted domestic non-automotive manufacturing focused on supplying the domestic market, which comes on top of weaker US demand arising out of the slower pace of industrial production in that country. Within the gross fixed investment component, significant growth continues to be concentrated in construction. However, the first quarter’s 13.6% rise marks a notable deceleration with respect to the 20.8% average increase reported for 2023.

In short, various aggregate demand components foreshadow a broader slowdown in economic activity. Consumption of domestic goods and investment in machinery and equipment are expected to remain weak in the coming months, impacting manufacturing geared toward the domestic market, while services consumption is expected to continue the slight deceleration trend seen recently.

Adding to this general picture, the economy grew a seasonally adjusted 0.9% in April yoy according to the monthly GDP proxy, IGAE. This was IGAE's worst reading since November 2021 and one that left the January-April average increase at 2.0%. While services (1.3% yoy) outpaced the headline IGAE result, their April growth fell well short of the 2.8% average increase of January-March. In a similar pattern, industrial activity growth slowed to 0.6% for the month as opposed to the January-March 1.7% stride. Last year’s extraordinary expansion of construction has also continued to give way to more modest numbers while manufacturing, mining and the primary sector all contracted outright.

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