Sticking to Our Low-Growth Guns
A surprising rise in the monthly GDP proxy for August showed a rebound in the 12-month growth rate, for both the seasonally adjusted (+2.8%) and the original series (+2.6%). The expansion was led by a 7.7% rise in primary sector output and, more importantly, a 3.4% increase in tertiary activity. Though this is one of the most important recent pieces of economic news, we’re sticking to our 2.1% growth projection for 2015. The latest monthly survey of private sector economists by Banco de México showed analysts had also scaled back their 2015 growth projections (from 2.34% the previous month to 2.31%), while predictions for 2016 and 2017 were cut to 2.83% and 3.30% m/m, respectively.
Internal consumption remains the main growth driver. Household consumption grew at a 12-month rate of 3.3% in July, 1 pp over the 2.3% increase in the same month in 2014. One reason for the strength is the positive effect of historically low inflation. Twelve-month inflation was 2.47% as of mid-October, the lowest reading since the authorities started publishing fortnightly inflation data in January 1989. Yet pessimism continues to deepen, among both consumers and business owners, on perceptions of past and future economic performance.
The industrial sector continues to struggle, with August data showing output up just 1% y/y.The mining sector remained the main source of weakness, as production fell 5.8% y/y, though that was a bit less negative than the 6.4% average decline seen for 2015 through July.
The 2016 budget includes major spending cuts. Despite the administration’s public proclamations that its top priority is public security and fighting organized crime, the budget calls for slashing funding to the police, and to other relevant security agencies.
In our continuing analysis of the 2016 election contests, we focus on Durango, Tamaulipas, Quintana Roo and Hidalgo, four states that have had only had PRI governors. In the latest Durango contest, the PRI defeated the PAN by only 2.5 pps, as the center-right party ran a career PRI politician. But the PRI governs almost 93% of the population at the municipal level, and may win again. There are similarities in Hidalgo, where ex-governor and current Minister of the Interior Miguel Ángel Osorio Chong is hoping to revive his presidential ambitions via a fight for the PRI gubernatorial nomination. The PRI has tightened its grip on Quintana Roo, and enjoys almost total control in Tamaulipas; and the party is unlikely to be turned out of office in either state. Newcomers Movement for National Regeneration, and Citizens Movement, are wild cards that could affect outcomes, or at least bolster their own prospects for 2018.
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