Economics: GFI Offers Little Hope of Strong GDP

MEXICO - Report 16 Oct 2017 by Mauricio González and Esteban Manteca

Fixed investment has been trending lower this year as both the public and private sectors have scaled back construction expenditures, and spending on machinery and equipment has been lackluster.

Machinery and equipment investment are still expanding, but growth rates fail to approach the kinds of levels that could translate into any substantial increase in installed capacity. Instead, it appears most is going toward replacing depreciated capital, a focus that would imply limited GDP growth potential over the intermediate period.

The downtrend in public construction investment of the past three years has extended to private construction in recent months, which in the aggregate have represented a considerable drag on overall investment. Of particular note is the clear weakening trend we have seen so far in 2017 in housing construction, possibly due to a tightening of credit conditions as well as the weakening of real wage growth in recent months.

Construction GDP has acted as a brake on GDP, although the softening of consumption of recent months does not imply a trend change in GDP growth. However, investment’s diminished dynamism of recent months – including the pronounced loss of momentum in specific segments in recent years – implies that at least through 2019, Mexico is unlikely to break out of the mediocre GDP growth averages of the past two years.

The 0.6% increase in fixed investment that is estimated for 2017 would not suffice to achieve any considerable increase in the economy’s productive capacity. Moreover, uncertainty surrounding Nafta renegotiations and Mexico’s 2018 presidential elections could lead to the postponement of investment plans during the remainder of 2017 and throughout 2018.

Other economic news last week revealed continuing declines in consumption (Antad, domestic auto sales) while the latest reading of annual inflation (6.35%) was the lowest in three months but was the highest seen for any month of September since 2000.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.