Economics: Evidence of increasing growth in recent months even as other issues loom over the economy
Economic news last month showed continuing growth that prompted us to raise our year-end GDP estimate at the same time as we are raising our inflation and interest rate projections. Although most of the broader readings of economic activity consisted of lagging indicators, both the the second quarter aggregate supply report and the monthly GDP proxy for July delivered growth that was stronger than expected, including robust private expenditure and fixed investment.
The industrial sector did the most to keep the economy expanding in July by growing an annual 3.5%, led higher by another strong showing from manufacturing. In more timely news, Antad-affiliated retailers reported real-term growth for August with store receipts up by an average 4.5% year to date. But the continuing rise in inflation (running at 8.76% at last count) and interest rates remains a major source of concern, especially at a time when the government continues to issue excessively sanguine budget projections and despite its assurances to the contrary, continues on a course marked by expanding fiscal deficits and public debt.
In economic news last week, Banco de México’s policy board responded to the latest inflation data with its third consecutive 75-basis point hike in the same-day interbank reference rate. The hike took the rate to its highest level since the bank began employing the measure as its reference rate in January 2008.
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