Economics: Results in November may suggest the recovery is peaking as major risks loom
Economic news published in November delivered numerous readings of economic activity in Mexico that proved to be much stronger than expected, beginning with a 4.3% yoy surge in third quarter GDP. While manufacturing continued to contribute significantly, thanks to the bounce seen in US GDP and industrial activity, the real surprise was a spike in tertiary activity reflecting a major reactivation of tourism-related activity and a more favorable base effect as the rules greatly reducing the possibilities for outsourcing, which had been affecting the corporate support services sector, began to dissipate. Commerce remains especially strong as retail sales continue to suggest a high level of consumer spending at the same time as both inflation (down from an October 8.70% peak to 8.14% at last count) and unemployment have been slipping, with manufacturing employment surpassing pre-pandemic levels thanks to strong export demand. On the public finance indicators, the results as of September appear solid on the back of strong revenue growth and a continuing primary surplus, although a weakening is expected for the coming months.
It is worth noting that challenges loom on essentially all these fronts, and these latest robust readings are unlikely to last long with the US economy expected to slow or even enter into recession and the toll that could take on industry in Mexico. Moreover, as we have entered what is expected to be a prolonged period of high interest rates in the major economies and therefore in Mexico, where Banxico’s monetary policy has been one of anticipating and matching Fed rate moves, some sectors in Mexico such as the long-beleaguered construction industry have yet to show a positive trend change for the near term, with growth likely to prove weak yet again next year.
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