Mexican economy bounces back in Q3

Posted on October 31, 2016

Mexico’s economy has rebounded strongly from its first period of contraction in three years, registering better than expected growth of 1 per cent in the third quarter.

Quarter-on-quarter GDP growth accelerated from the 0.2 per cent shrinkage recorded in the second quarter, coming in better than the 0.8 per cent expansion forecast by economists. It is the best three months of growth since the second quarter of 2014.

Quarterly GDP was 1.9 per cent higher than the same period in 2015, said Mexico’s statistics office Inegi, in line with forecasts.

Despite the economy falling into reverse in the middle of the year, Mexico’s central bank has been forced to embark on a fresh tightening cycle in a bid to shore up the peso, which slumped to an all-time low against the dollar in September.

Less accommodative monetary policy should keep a lid on growth in the coming quarters, note analysts.

“Policymakers have enacted both fiscal and monetary tightening this year, which means that the headwinds remain significant” said Win Thin at BBH, ahead of today’s GDP release.

Growth was supported by a smaller than expected slump in industrial production, with the third quarter registering just a 0.1 per cent quarterly decline in industrial output. Mexican consumers helped power along the economy, with services rising 1.5 per cent on the year.

“Private spending will remain the key driver of economic activity, but the rate of growth likely will slow, at the margin, due to the monetary tightening”, said Andres Abadia at Pantheon.

“This modest slowdown will be offset by the gradual recovery of the manufacturing sector. Fiscal consolidation, and still-low consumer confidence, though, will prevent any acceleration in GDP growth in the foreseeable future” he said.

Chart courtesy of Bloomberg

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