All members of the Governing Board of the Bank of Mexico (Banxico) agreed that national productive activity is going through a period of weakness and the majority indicated that it has registered a visible loss of dynamism since the last quarter of 2023.
According to the minutes of the meeting of the Banxico Governing Board, on the occasion of the monetary policy decision announced on September 26, 2024, some of the members of the board stated that it is anticipated that in 2024 and 2025 the activity national economy shows a moderate rate of expansion.
Some considered that the balance of risks for economic activity remains biased downward. One argued that a downward risk factor that has become relevant is the possibility of lower-than-expected growth in the United States economy materializing, to the detriment of Mexico’s external demand.
This member of the Governing Board added that another risk is the environment of high uncertainty that prevails due to both internal and external factors.
Causes of economic weakness
At the meeting, one of the members of Banxico’s Governing Board attributed the economic weakness to the environment of uncertainty associated with idiosyncratic factors, as well as the expectation of lower activity in the United States and the development of the electoral process in that country.
Another estimated that the lack of economic dynamism is a consequence of the stagnation of manufacturing production in the United States, which affects the export sector, and a slowdown in investment, which usually occurs when there is a change of government, but considered that Despite signs of slowdown, an economic contraction is not anticipated.
Regarding the behavior of activity by sector, some emphasized the slowdown in secondary and tertiary activities. One pointed out that the sluggishness of industrial production has affected wholesale trade activity, which together with a weaker evolution of other services has led to the tertiary sector as a whole registering a loss of dynamism.
Some warned that within the manufacturing sector there is a general weakening of its components. One pointed out that two thirds of the subsectors that make it up register negative annual variations. Some pointed out that in recent months activity showed a moderate improvement associated with a certain rebound in construction.
But one mentioned that, although the construction has shown dynamism, the civil engineering works have moderated due to the completion of different government projects.
Domestic demand
Regarding domestic demand, the majority of the members of the central bank’s Governing Board indicated that consumption slowed down. Some considered that it has even stagnated. The majority noted a contraction in the consumption of imported goods. One pointed out that social programs were brought forward to the first quarter, so the absence of such aid in the second quarter would have explained part of the observed consumption behavior.
He argued that it is foreseeable that given the resumption of support for social programs in the third quarter, consumption will exhibit a certain rebound.
He added that other factors would also support the dynamics of consumption going forward, such as the increase in income from remittances in pesos, driven by the recent exchange depreciation, as well as salary revisions.
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