Economics: Lower GDP forecast as sectoral activity is likely to remain below pre-pandemic levels
Following up on last week’s analysis of aggregate demand components that have been decelerating in recent months and factors that might impede their expansion in the current year, we are turning our attention to the recent performance of the Mexican economy’s main sectors and are introducing our updated GDP and sectoral forecasts for 2022. One area of special concern amid the recent trend toward a further loss of momentum is the degree to which this implies that economic activity is likely to remain below both 2018 and 2019 levels during this year.
The most recent readings of the country’s industrial activity indicators suggest that the recovery in manufacturing may be weaker than the market had assumed as 2021 drew to a close. In November industrial activity contracted, with only mining managing to firm a bit as factory activity was flat. The manufacturing branches that maintain a gap relative to pre-pandemic levels (2019) account for close to 8% of GDP and involve activities with a major impact on the economy as a whole.
Services have also experienced a relative softening in recent months and remain 12.8% below their 2019 close, a performance gap due primarily to the lack of recovery seen in segments that experienced the direst pandemic-related consequences, leaving them languishing as much as 28.5% below pre-pandemic levels. The intensity of the omicron variant’s spread and related restrictions make any significant recovery in these services even less likely, a blow to revenue growth and hiring in this labor-intensive sector.
Based on these economic projections, we anticipate that on average, during 2022 GDP will come in 0.9% under levels of 2018, with the industrial sector remaining 2.7% below what it achieved five years ago and services climbing only 0.2%. Among industrial components, only manufactures are likely to surpass their 2018 mark (by 2.6%), while the mining and utilities sectors will fall short by 3.8% and 6.4%. Also troubling is the probability that construction activity will be 13.3% shy of that reference year, with all the adverse implications that entails for multiple supplier sectors and sources of job creation.
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