Economy Slows Amid Uncertainty
Economic news published in June tended to provide further evidence of an economy that is losing steam, as private consumption and export activity, which have served as the main drivers in recent years, registered steadily lower growth. There were relatively positive signs, such as an extension through March of the recovery in gross fixed investment dating back to the final months of 2017, but that also seemed to be leveling off. Aggregate supply and demand data through the first quarter of 2018 showed growth stronger than anticipated, but that came largely from an atypical bounce in public investment that snapped a three-year streak of sharp declines.
But a more recent reading of activity came from the monthly GDP proxy (IGAE) for April, which revealed a considerable slowing from 3.0% a year earlier to 1.4% on a seasonally adjusted basis, as tertiary sector growth was well below that of the previous two months due to a decline in retail commerce, the services industry’s weightiest segment. Industrial activity was only slightly higher in April than levels of a year earlier, thanks largely to a rise in construction activity. However, on an accumulated basis industrial activity remains flat year to date.
When announcing its latest quarter-point interest rate hike in response to higher international rates and foreign exchange pressures, Banco de México warned that preliminary evidence points to a further deceleration of GDP during the second quarter. This deceleration comes amid the growing sense of uncertainty inherent in the complex environment in which the Mexican economy is operating, at a time when Mexico is electing a new government and is confronted with trade pressures emanating from Washington both in the form of Nafta talks and the current bout of tit-for-tat tariff announcements. Inflation continues to recede, but at a slower pace than previously expected, and additional pressures may loom despite assurances from the monetary authority that Mexico’s new tariffs on US goods will have only a limited and transitory effect on consumer prices at a time when domestic consumption is slowing.
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