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Economic
activity surprises to the upside
In February, economic activity increased a strong 5.8% over the same
month last year, according to the global indicator for economic activity (IGAE,
Indicador Global de la Actividad Económica). The reading was up
from the 3.7% expansion registered in January and also came in ahead of
market expectations, which had anticipated economic activity expanding
5.1% annually. The acceleration over the previous month was mainly driven
by faster growth in the industrial sector, which increased 5.7%
year-on-year (January: +3.1% yoy). In addition, the service sector
maintained the robust pace seen in previous months and increased 6.0% over
the same month last year, up from the 5.0% growth recorded in January. On
the other hand, growth in the agriculture and livestock sector decelerated
from 3.3% in January to 1.7%. A month-on-month comparison does not
corroborate the acceleration suggested by the annual figures, as economic
activity contracted 1.65% over the previous month in seasonally adjusted
terms, which contrasted the 0.43% expansion registered in January. As a
result of the strong February reading, the annual average growth rate
stepped up from 3.3% in January to 3.6%.
Mexican
economy resists sluggish growth in the U.S.
The latest
data show that the U.S. economy has not officially entered into a
recession yet. Nevertheless, economic growth in the United States has
come down to a virtual standstill, which continues to affect the Mexican
economy strongly, in particular the export-oriented manufacturing
industry. That said, so far, exports have been showing much more
resilience than previously expected
–
with export
growth reaching a strong 16.4% annually in the first quarter of the year
–
as non U.S. destinations are picking up the slack from weaker demand from
the United States. The current state of play suggests that the Mexican
economy is better prepared to weather the effects of a slowdown in the
United States than in previous periods of weakness. During the past
years, balanced fiscal results and low inflation have helped reduce
interest rates in Mexico, thus increasing credit access and promoting
consumer spending. As a result, domestic demand is less prone to
precisely mirror the movements of the northern neighbour. While recent
indicators show mixed results, the overall balance seems to point to a
stable outlook for the time being. In April,
the tendency
indicator (IAT, Indicador Agregado de Tendencia) that gauges the
assessments of companies about production, plant utilisation, domestic
demand for their products, exports and personnel, rose strongly from 48.3
points in March to 53.1. Meanwhile, the producer confidence indicator (ICP,
Indicador de Confianza del Productor) which measures the
preferences for investment, the assessment of the current and future state
of the economy as well as the current and future state of the company,
remained practically unchanged over the previous month, falling slightly
from 50.3 points in March to 50.0. On a negative note, consumer
confidence fell sharply in April to 97.8 points, down from 102.7 points in
March. Thus, the index crossed the 100-point threshold, falling into
pessimistic territory for the first time in almost three years, as most
consumers consider that the economic situation is worse than a year ago.
The finance ministry recently stated that it expects economic growth to
have reached around 3.0% in the first quarter, while it predicts growth
for the full year to reach 2.8%. Meanwhile, the Central Bank has lowered
its GDP growth projections for this year, from the previous 2.75%-3.25%
range to the current 2.4%-2.9% forecast. Consensus Forecast panellists
share the monetary authorities’ view and anticipate that the economy will
expand 2.6% this year, which is unchanged from last month’s forecast. For
2009, the panel expects economic activity to step up to 3.4%.
Food prices pushing up inflation
In April,
consumer prices increased 0.23% over the previous month, which was down
from the 0.72% price rise registered in March. Moreover, the reading came
in virtually in line with market expectations, which had anticipated
prices rising 0.26% over the previous month. Lower prices for housing as
well as for education and leisure helped mitigate a sharp increase in food
prices, which added 1.22% over the preceding month. Despite the subdued
April reading, annual headline inflation stepped up from 4.3% in March to
4.5%, which is the highest level in almost three years. The core
inflation index, which excludes more volatile categories such as oil,
fresh fruits and vegetables, added a more pronounced 0.41% over the
previous month. As a result, annual core inflation rose from 4.3% in
March to 4.6%. Thus, both headline and core inflation remain well above
the Central Bank’s long-term inflation target of 3.0%.
On 18
April, before the publication of the April inflation data, monetary
authorities decided to keep the benchmark interest rate unchanged for the
sixth consecutive month at 7.5%,
in a decision
largely expected by the market.
Nevertheless, on 30 April, the Central Bank raised its quarterly inflation
forecasts for this year. The Bank expects price pressures to peak during
the second and third quarter and to moderate slightly towards the end of
the year. Monetary authorities argued that a sharp rise in food prices
made the adjustment necessary, but added that the current spike in
inflation should end soon, as the increase in food prices is not likely to
spread to other categories.
Consensus
Forecast panellists anticipate headline inflation moderating to 3.9% by
the end of this year, which is 0.1 percentage points above last month’s
forecast. For 2009, the panel expects inflation to decelerate further to
3.4%. |
