Economics: Data published in May tended to show continuing growth but at a slower pace

MEXICO - Report 30 May 2023 by Mauricio Gonzalez and Francisco González

While GDP for the first quarter (3.7%) came in 2bp lower than the preliminary figure published almost a month earlier, consumption and gross fixed capital formation figures for the first months of the year came in higher than expected, prompting us to upwardly revise our growth projection for 2023 to 1.8%. The economy has recently been powered primarily by consumption and investments in fixed assets.

Although most continue to anticipate a recession in the United States that would exert downward pressure on the country’s trade performance and its manufacturing sector, such a contraction in the US is not likely to begin to take shape until late 2023 and early 2024. Nevertheless, growth in industrial activity had already slowed in March to its weakest level in 16 months as the dominant manufacturing subsector showed only minimal gains.

Annual inflation fell from 6.25% in April to 6.00% through the first half of May, with Banxico deciding at mid-month not to match the Fed’s latest rate hike and leave its own reference rate unchanged. At first glance, this would appear to be an acceptable pause even if inflation were to fail to subside in the coming months at its current pace. However, monetary officials are taking a risk by betting that inflation will ease consistently between now and September as failure to perform in that manner could eventually force them to resume rate increases regardless of what the Fed decides to do at that time.

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