Economics: Data released in July reaffirm the internal market as the main growth catalyst as trade continues to subside
While the expansion of industrial activity actually accelerated above its average pace year to date in May, manufacturing abdicated its role as the main driver as it almost stalled. But the difference was more than offset by much stronger numbers from construction (thanks to civil engineering works) and mining (oil and gas extraction).
Private consumption indicators for May and June show household expenditure sustained the high growth levels we saw in the first quarter of the year, all of which has been in keeping with the positive employment and wage indicators reported for the same months. Nevertheless, wholesale commerce extended its fall. Inegi’s monthly GDP proxy for May showed continuing growth led by the tertiary sector, and to a lesser extent by industrial activity.
Exports to the US have experienced a slowdown in recent months, concentrated in the non-automotive manufacturing component, which comprises between 60% and 70% of all manufactured goods Mexico ships abroad. The slowdown comes in response to both the deceleration in US industrial production and the extent of the exchange rate appreciation. An additional factor that is generating uncertainty as to whether export dynamism can be sustained in the long term is the deterioration of the relationship with the US over several issues related to disagreements in the context of the USMCA. Similar concerns apply to future FDI trends as there is little evidence that Mexico is achieving its true nearshoring potential.
Finally, last week’s report on inflation for the first half of July showed CPI YoY growth at a 56-fortnight low of 4.79%. Regarding employment, the jobless rate fell to 2.7%, with the ranks of informal workers continuing to swell.
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