Economics: Another month filled with new signs of economic weakness

MEXICO - Report 06 Sep 2022 by Mauricio González and Francisco González

Economic news last month showed continuing growth, including a 2% yoy expansion of GDP for the April-June quarter that extended to all sectors as construction bounced back from a slightly negative first quarter to expand 1.1%. The main driver was a 3.3% increase in industrial output, with manufacturing yet again serving as the main catalyst by delivering the most significant percentage increase of any industrial component.

A separate report revealed 3.8% annual growth in industrial activity in June that marked an improvement over the average increase year to date but still left the industrial index 3.4% below the pre-pandemic, pre-AMLO peak levels of June 2018. And perhaps even more troubling, on a sequential basis industrial production inched a mere 0.1% above levels of the previous month, with manufacturing output sequentially flat. This may be a possible signal that factory activity could stumble after serving as the main driver of the Mexican economy for quite some time.

With the rise in prices clearly having yet to reach a point of inflection, Banco de México’s policy board increased its year-end inflation forecasts and announced on August 11 it had raised its same-day interbank reference rate by 75 basis points for a second consecutive time, elevating it to 8.5%.

There was also further evidence of a firming of the job market as the number of people working in the manufacturing sector in June climbed in keeping with the trends in place so far this year, while the jobless rate fell by a full percentage point during the second quarter. But the deterioration of the composition of the job market will adversely affect pay and private consumption.

In the energy sector, Pemex continued to greatly benefit from market conditions that have sent crude and gas prices sharply higher as the company’s second quarter results showed added momentum on numerous upstream and downstream fronts, along with greater revenues and margins that contributed to its best bottom line for a first half since 2010. But with both Washington and Ottawa pursuing USMCA dispute settlement consultations over AMLO’s energy sector policies, Mexico could be facing major sanctions should the López Obrador administration fail to soften its efforts to curtail private participation in the oil and electric power industries.

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