Mexico’s economy looks set to decline in July: ‘There are signs of a worrying slowdown’

Mexico’s economy is on track to have a weak start to the second half of 2024, dragging along the inertia of the first half, which could lead to lower-than-expected growth for the entire year.

Economic activity would have advanced 0.1 percent monthly in June, but in July it would have fallen 0.1 percent monthly, according to the nowcast of the Timely Indicator of Economic Activity (IOAE) of the National Institute of Statistics and Geography (Inegi).

In the case of June, the range is between a monthly growth of up to 1 percent or a fall of 0.9 percent; while in July, it ranges between an advance of 0.8 percent and a contraction of up to 1 percent.

By type of economic activity, tertiary activities, related to trade and services, could have a fall of 0.1 percent monthly in both June and July.

Secondary activities, mainly linked to construction and manufacturing, showed an advance of 0.4 percent in June, but in July they would fall 0.2 percent monthly.

“The economic data available for the first half of the year are worrying: low economic growth, weak creation of formal jobs and a rise in inflation general, especially in food. These factors require the newly elected authorities to present a plan for sustainable and shared growth,” explained Mexico, how are we doing?

UNAM Economics professor Octavio Dorantes said that expectations are not very good and that the dynamics in the second half of the year will continue to slow down. “The reference rate that remains high, inflation that does not yield, together with problems in industry and the formal labor market, have caused the economy not to grow as expected.”

James Salazar, deputy director of economic analysis at CIBanco, stressed that the second half looks more complex, and has caused most GDP forecasts for this year to be revised downwards to below 2.0 percent.

“The factors that will have a negative impact will be the reduction in public spending, investments continue to be postponed due to the change in the six-year term and the uncertainty caused by President López Obrador’s reform agenda, and on the external side, growth is moderating and this has an impact on Mexico’s foreign trade, on the export side,” said Salazar.

Mexico’s GDP ‘sluggish’ in the first half of 2024
The Mexican economy has shown less dynamism in the first half of the year, with domestic consumption slowing down in the face of rising inflation and a weaker formal labor market, coupled with an industry that has lost strength.

Between January and July, the Mexican economy showed an average growth of 1.7 percent annually, below the 3.4 percent observed in the same period in 2023 and the weakest since the 10.7 percent contraction in 2020.

At an annual rate, the IOAE is heading for an advance of 1.3 percent in June, but in July the growth would be 1.1 percent.

In services, in June the expansion would be 1.9 percent annually, but in July it would lose strength to 1.6 percent.

The loss of strength in industry in the annual reading is more evident, since in June it grew 0.4 percent, and in July it is on track for an advance of just 0.1 percent, which, if confirmed, would be the weakest since November 2021.

“The Mexican economy shows signs of a worrying slowdown. Despite the huge fiscal deficit of 5.9 percent of GDP, the economy has lost strength,” said Alejandro Gómez, general director of the Group of Advisors on Economics and Public Administration (GAEAP).

Going forward, Dorantes considered that a possible reactivation of the economy is expected to be through nearshoring so that industry improves and in particular manufacturing and construction, which have been weakened in recent months.

Regarding services, Monex pointed out that they maintain a slight strength, driven by domestic consumption both retail and wholesale, but could be negatively impacted by the recent rise in inflation.

Prolonged weakness

One of the factors that can prolong the internal economic weakness is the adjustment to public finances to reduce the fiscal deficit that will imply a brake on public spending.

Among the factors that could prolong the internal economic weakness is the adjustment of public finances to reduce the fiscal deficit, which will imply a brake on public spending.

“A major adjustment must be made, spending must be sharply reduced and this would undermine the country’s economic activity and it is not a good omen to start like this,” said Salazar.

Another key point will be the US economy, which will also have a presidential election and in some way there will be changes that will impact the Mexican economy due to immigration, fiscal and commercial issues, said Dorantes.

A possible victory for Donald Trump could generate uncertainty due to the measures he seeks to implement, especially those that have an impact on Mexico, said Salazar.

Source: elfinanciero