Mexico's Economy Rebounds Less Than Expected After Stalling – BNN

(Bloomberg) — Mexico’s economy returned to growth in the first three months of the year after stalling in the last part of 2021, expanding slightly less than expected amid strong U.S. demand for manufactured goods.

Gross domestic product grew 0.9% in the first quarter from the previous three-month period, compared to the 1.1% median estimate of analysts surveyed by Bloomberg, according to preliminary data released by Mexico’s statistics institute Friday. The economy had narrowly avoided recession in the second part of last year.

On an annual basis, Latin America’s second-largest economy grew 1.6% between January and March, matching the forecasts. Manufacturing and services growth led the rebound, while agriculture shrank.

Mexico’s result comes after the U.S. economy shrank for the first time since 2020 in the same period, with gross domestic product falling at a 1.4% annualized rate, according to data released Thursday. The Latin American country managed to grow while its northern neighbor fell because the U.S. contraction was partly due to its negative trade balance, said Gabriela Siller, director of economic analysis at Grupo Financiero BASE.

The U.S. “imported more than it exported and where does it import from? A good part of it from Mexico,” Siller said.

What Bloomberg Economics Says 

“The recovery is uneven and incomplete. Services and manufacturing have outperformed, bolstered by waning headwinds from the pandemic and robust external demand. Construction and mining have lagged due to tighter monetary conditions and government policies. Activity remains below its pre-pandemic level.”

— Felipe Hernandez, Latin America 

— Click here for the full report 

Still, the Mexican economy is not out of the woods and activity remains sluggish, facing intractable security problems, some uncertainty over President Andres Manuel Lopez Obrador’s constitutional reform agenda and continued risks from Covid-19 and Russia’s invasion of Ukraine.

“There’s nothing to cheer about in these GDP numbers. Mexico could have easily been the star in Latin America, given its geopolitical proximity to the U.S., and its huge potential for nearshoring,” Andres Abadia of Pantheon Macroeconomics wrote in a research note. “Some silver linings, including the further reopening of the economy, a solid U.S. economy, and a modest downturn in inflation, however, will prevent a collapse.”

Growth is likely to slow to 0.5% to 0.8% over the coming quarters, according to Gabriel Casillas, chief Latin America economist at Barclays Plc. It was boosted in the first quarter from “once and for all things” like sectors reopening after December’s wave of the omicron variant and heavy government spending to open a new Mexico City airport by March, he said.

Overall growth for 2022 is seen at a modest 1.8%, according to economists polled by Citibanamex earlier this month.

The economy will likely return to pre-pandemic levels in the third quarter, Casillas said, adding that it may not hit its 2018 point until the end of next year or even 2024. After recovering fairly fast from the pandemic in late 2020, activity lost steam in the second half of last year, as supply chains snarled, virus variants proliferated and Lopez Obrador declined to step up spending to support the recovery.

Meanwhile, inflation has surged to two-decade highs, forcing the central bank to partially remove its monetary stimulus. The bank’s board has hiked its key interest rate 250 basis points over seven meetings since June to 6.5%.

Read More: Mexican Government’s Nationalist Rhetoric Limits Outlook

(Updates with detail and economist comment from paragraph 3)

©2022 Bloomberg L.P.

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