The consensus for 2013 and 2014 GDP growth has dropped precipitously over the last six months, due to weak activity in the first half of 2013. The downgrade in expectations has occurred over a relatively short amount of time. Q1 growth was hampered by under-spending on the fiscal side and housing sector retrenchment, a situation not helped by the government scaling back on subsidies and other efforts supporting the industry. GDP growth did recover in y-o-y terms, from +0.6% in Q1 to 1.5% in Q2, but on a seasonally-adjusted q-o-q basis, the economy shrank by 0.7%. Sluggish US demand for exports has been a major factor behind lacklustre activity, prompting manufacturing to decline by 1.3% (y-o-y) in Q1 and rise by only 1.6% in Q2. Going forward, production grew by 2% (m-o-m) in July before easing to +0.5% in August while the y-o-y rate dropped from 3.4% to 1.6%, but a notable improvement in the US’s latest ISM manufacturing survey does provide some hope for a more entrenched pickup in Mexican industry. Still, last month’s hurricanes, which pounded both coasts and left 150 people dead, have dented hopes for Q3. This is expected to impact on activity at a time when policymakers were hoping for a rebound. September’s manufacturing and services PMIs slipped as a result of storm damage, while consumers have been scaling back purchases. Some observers have made much of Walmex’s sales figures (the Mexican arm of WalMart being the country’s largest retailer) which dropped by 4.7% (m-o-m) in September, their biggest decline in 14 years. With construction in recession, 2014 consumption and investment forecasts have been downgraded. In addition, foreign direct investment has seen sizeable outflows on the back of high levels of drug-related crime in Mexico.
After lowering the lending rate to 3.75% last month, Banco de México is expected to cut again on October 25, followed by another cut in December. The weakening growth environment, along with the US government shutdown and next year’s withdrawal of US monetary stimulus, is causing jitters. With September inflation at 3.4% (y-o-y), Banxico has room for manoeuvre.
You can download a sample of Latin America Consensus Forecasts at www.consensuseconomics.com.