Economics: Slowing apparent in the latest GDP sectoral results

MEXICO - Report 10 Sep 2018 by Mauricio González and Francisco González

The weakness of GDP during the second quarter was largely due to slackened growth in manufacturing and construction and the long-term trend toward a substantial erosion of Mexico’s oil and gas platform.

Despite the United States’ imposition of import taxes on Mexican-made steel products, the country significantly expanded its exports of such goods during the first six months of 2018, while also sustaining strong export growth in the case of the automotive sector.

Private consumption has continued to outpace GDP growth through the first half of the year, but has slowed in relation to the growth rates of the previous two years. In that sense, the GDP components related to consumption such as retail and wholesale commerce also outperformed headline GDP in the first six months of 2018, as did wholesale activity.

Of special significance is the extent of international uncertainty and the United States Fed’s increasingly restrictive monetary policy, which has led to a tightening of credit apparent in the narrowing of foreign currency credit reaching the non financial private sector of the Mexican economy. This shortfall in external credit inflows has been covered in part by the local currency market, but a short-term rise in the cost of credit from abroad could further fan demand for local currency sources of funding.

GDP and sectoral results for the first six months of the year are in keeping with our forecast at GEA that the Mexican economy will grow 1.9% in 2018 on the strength of an expansion of the service sector (2.6% e), including a rise in commerce, restaurants and hotels (2.5% e). We look for a similar expansion to the total GDP in manufacturing (2.0%), but that would mark an almost full percentage point deceleration compared to the industry’s 2017 year-end performance (2.9%). We also anticipate a contraction of mining (-5.6%) due almost entirely to the unrelenting downward trend in oil and gas production of recent years.

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