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May economic activity better than expected
In May, economic activity increased 1.6% over the same month last year.
The reading came in well above Consensus expectations of 1.2% but remained
below the strong 3.9% growth recorded in April. While the May reading
represented the second consecutive month of upward surprises to economic
activity, the numbers were inflated by seasonal factors. In fact,
according to seasonally adjusted data, the economy actually contracted by
0.41% over the preceding month. However, it should be noted that the
comparison base in April represented a rather large hurdle, as economic
activity in that month had gained 1.95% in seasonally adjusted terms,
which was the highest monthly increase in eight years.
Services sector leads growth, industry recedes from the strong April
reading but remains positive
On a sectoral basis, services led growth, expanding 2.2% compared to the
same month last year (April: 2.8% year-on-year). Stronger domestic
wholesale and retail activity as well as an uptick in telecommunications
drove the April performance in services. Agriculture was the second
fastest growing sector, adding 1.3% over May 2001, down from a 1.8% growth
rate reported for April. Industry was the slowest-performing sector,
expanding a meagre 0.9%, following on the very strong 7.8% annual growth
rate reported for April. The deterioration was mainly due to lower growth
in the domestic manufacturing industry, where activity remained almost
unchanged (+0.1% over May 2001) compared to strong 8.4% in April. The
maquiladora industry, which is the most affected sub-sector in the current
business cycle slowdown due to its exposure to the United States economy,
actually improved compared to April. Nevertheless, the sector remains
deeply mired in recession, as evidenced by the 11.7% decline compared to
the same month last year.
Positive signs from recent development balanced by concerns over US
recovery
Additional indicators for May complement the picture of an incipient but
still cautious recovery. Investment activity added 3.4% over May 2001,
which last year had constituted the first month with a significant decline
in activity and thus presented a favourable comparison base. The trend of
“easier” comparison bases will become more notable in the coming months as
the recession began to take a grip over the Mexican economy in the same
period last year. Retail sales also performed quite well. The 3.1% annual
growth reported for May was the highest reading in a year, apart from the
strong 4.4% growth in April. The only caveat comes from the leading
indicator. On 2 August, the National Statistical Institute (INEGI)
reported that the leading indicator for May, which anticipates the future
development of the economy, dropped 3.3% in May over April in seasonally
adjusted terms, the first negative rate observed in half a year. Moreover,
the decline was broad based, as all components of the indicator
experienced negative developments. The negative reading for the leading
indicator fuels concerns that the tentative recovery observed in the
recent past could be suffocated before it comes to full fruition. In
particular, US developments have raised doubts over a sound recovery in
the second half of the year, as the accounting confidence crisis in that
country weighs heavily on the capital markets and recent GDP figures
indicate a less favourable development than believed earlier. So far,
positive and negative signs seem to be cancelling each other out.
Consensus Forecast panellists have maintained last month’s assessment
of growth prospects. For next year, the panel is
more optimistic, expecting economic growth to pick up
as the long waited for global rebound will seize all regions in the world.
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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