Economics: Continuing export strength potentially threatened by the direction of US demand

MEXICO - Report 21 Mar 2023 by Mauricio González and Francisco González

Economic activity data for January and February has delivered mixed results in the case of manufacturing and construction, as have consumer and business confidence indicators. US industrial production, with its decisive incidence on Mexican manufacturing, has been slowing over the past three months (December 2022 – February 2023) as output at US factories has slumped below levels of January 2018. The Industrial Production index fell by an average 0.7% yoy in the most recent December-January period and slightly accelerated that negative trend by slipping 1.0% in February. As we have frequently argued in previous reports, one of the most relevant factors in determining Mexico's economic performance this year is how industrial production in the United States is likely to perform.

In Mexico, a positive performance was observed in most branches of manufacturing. The manufacturing production index registered an annual increase of 4.1% for January, with 16 of its 22 components showing positive variations. Nevertheless, we are starting to see slower rates of growth. The construction sector continues to labor within an adverse investment environment that precludes a clear recovery trend as construction spending fluctuates near historically lows despite having managed to achieve some annual growth in some recent months.

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