Analysts sounded alarms on the Mexican economy this Thursday after new data endorsed weak growth in the first quarter, while inflation was located outside the target range of the central bank for the first time this year.
The Gross Domestic Product (GDP) of the second largest economy in Latin America grew 0.2% in the first trimester compared to the previous period, according to inegi disseminated data, in line with the market forecasts in a reuters survey and a preliminary estimate published last month.
Although agricultural growth compensated for falls in the manufacturing and services sector, which allowed Mexico to avoid the technical recession that some had feared, the economy in general still indicates weakness.
“The underlying impulse is still fragile and the prospective indicators suggest a deterioration of perspectives,” said Andrés Abadía, chief economist for Latin America of Pantheon Macroeconomics.
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At an annual rate and with original figures, GDP grew 0.8% in the first quarter or 0.6%, according to seasonality adjusted.
“The data shows that during the period, industrial production continued to decrease and the services weakened,” said Banamex.
Economists warn that the Mexican economy, strongly intertwined with that of the United States, is still at risk of contracting in the next quarters due to the uncertainty unleashed by the commercial and tariff policies of President Donald Trump.
“The perspectives suggest that the activity will remain weak in the next quarters,” Banamex added in a report.
The general inflation of Mexico accelerated unexpectedly to 4.22% in the first half of May, above the 4.01% prognosis of analysts surveyed by Reuters and outside the target range of the Central Bank, which goes 2% to 4%.
Consumer prices increased 0.09% in the first 15 days of the month with respect to the previous 15 days, partly driven by a surprising increase in chicken prices, while the underlying, less volatile inflation, advanced 0.16% in the fortnight to be 3.97% at an annual rate.
The Bank of Mexico cited the weak economic activity in its decision of last week to cut its reference interest rate in 50 base points, its third consecutive cut of that magnitude, taking it to 8.5%, the lowest level since August 2022.
Despite the jump in inflation, the analysts of Actinver, Pantheon and Capital Economics believe that the Central Bank of Mexico will again cut its rate at its June monetary policy meeting.
“The Central Bank was very moderate at its meeting last week and made it very clear that it is increasingly concerned about growth prospects,” said Kimberley Sperrffter of Capital Economics.
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While growth is not part of the mandate of the Central Bank, a weaker perspective is expected to increase the pressure on the Governing Board to continue reducing indebtedness costs by reducing its rate.
When talking with President Claudia Sheinbaum, the Secretary of the Treasury, Edgar Amador, said the GDP figures showed a “solid performance and continuous expansion of the economy.”
Hacienda has a more optimistic forecast for the Mexican economy than that of private sector analysts. A budget project of last month predicted economic growth between 1.5% and 2.3% this year.
A Central Bank survey to private sector economists published on May 2 had an average growth forecast of only 0.2% this year.
“The Mexican economy is going well,” said Sheinbaum on Thursday. “It is not necessary to change the model.”
With Reuters information
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