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Increased optimism over an economic rebound in
the United States is only slowly feeding through to the Mexican economy,
which remains in recession. However, once the higher growth in the US
prompts a broad-based restocking, the economy should rapidly gain steam in
an ensuing export-led recovery. The domestic economy will be quick to follow
as low unemployment and a benign credit environment will boost consumption.
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February disappoints to the downside but recession is drawing to an end
In February, the Mexican economy contracted 0.5% compared to the same
month last year. The decline was slightly worse than expected but compares
favourably to the higher contractions observed in previous months (-2.0%
year-on-year in January) and confirms that the recession of the past year
is indeed drawing to an end. On a seasonally adjusted basis the economy
actually expanded 0.64% over the previous month. A 1.8% contraction of the
industrial sector drove the year-on-year decline. Nevertheless, the
February decline in industry represents an improvement when compared to
the more pronounced declines during the past year. More importantly, the
rate of contraction in the manufacturing industry has dropped
substantially from January, indicating that the worst may be over. On the
other hand, the maquiladora industry continues to lumber along, as the
pickup in US demand is only slowly feeding through to higher production
for the Mexican in-bond manufacturing facilities. Services also improved
over the 1.6% contraction reported for January and declined at a more
moderate 0.6% annual rate in February, even though commercial activities
and hotel services remain weak. Finally, agriculture jumped 11.9% in the
second month of the year, more than twice the growth rare registered in
January.
Consensus grows more optimistic about economic recovery this year as signs
of stabilization accumulate
The unemployment figure reported for March sent no clear signal as the
2.8% reported was a 0.1 percentage point above the February figure, which
came in surprisingly low. However, the unemployment figures contain a lot
of statistical noise and the unemployment rate should in any case follow
and not lead an economic recovery. More important are the latest leading
and coincident indicators released by the National Statistical Institute (INEGI).
The coincident indicator, which tracks the economy’s current performance
was positive for the first time since February 2001 (apart from August
last year) and the leading indicator, which hints at the future
development of the economy, is now well established in positive territory,
which suggests that the Mexican economy is set for a recovery in the short
term. Consequently, Consensus Forecast panellists expect the economy to
pull clear from recession in the current quarter.
Since the global economy is seen to pick up more speed in the second half
this year, Mexico should follow suit, with growth accelerating in the
third quarter and in the final quarter of the year. For the year as whole,
the survey panel raised expectations
0.1 percentage points from last month but remain
short of the more optimistic Central Bank, which on 8 May announced an
upgrade in its growth projection from 1.5% expected in January to 1.8%.
Consumer prices rise in April – headline inflation remains virtually
unchanged
In April, consumer prices increased 0.55% - virtually the same rate as in
the preceding month. The price increase was somewhat above the Consensus
Forecast expectations of 0.50%. Higher prices for domestic gas, housing
and some food items drove the general consumer price level upwards, as
lower electricity rates only partially mitigated the upward pressures. As
a result of the April increase, annual headline inflation rose slightly to
4.70% from 4.66% in March. The core consumer price index registered a
somewhat lower spike in April, as it excludes more volatile fuel prices,
which drove the April headline rate upwards. The annual core inflation
rate dropped from 4.55% in March to 4.38% in April and was thus below the
official year-end inflation target set by the Central Bank. Panellists
have maintained their year-end headline inflation forecast unchanged from
last month.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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