Economics: Abstaining from an optimistic consensus
Many have interpreted the data contained in the preliminary GDP report for the second quarter as confirmation that the Mexican economy shows no sign of slowing down. However, we at GEA disagree with that assessment as a look at a broader array of indicators points to a scenario in which the economy is clearly losing steam.
Admittedly some indicators in recent months have given the impression of continuing momentum, especially the extent to which the prolonged recovery in both consumer and producer optimism extended through June and July of this year. Nevertheless, we see no reason to upwardly revise our estimates, which anticipate weakened levels of economic activity during the third and fourth quarters of the year.
As we note in this week’s Economic Outlook, indicators for June and especially July appear to reflect confidence that the incoming administration will contribute to a more pronounced expansion of the economy going forward. However, that rise in optimism appears to be part of a historical pattern that was evident in the run-up to and the months immediately following the presidential elections of 2006 and 2012.
Admittedly, preliminary GDP results for the second quarter came in better than expected, with expansions of 2.7% year on year and 1.8% compared to the first quarter. But those numbers greatly benefited from a favorable Holy Week-related calendar effect and other seasonal fluctuations. Seasonally adjusted data tells a much less sanguine story, as GDP actually contracted a sequential 0.1% and grew only 1.6% above levels of a year earlier. Other hard indicators show export growth slowed considerably in June from an annual 11.3% in 2017 to 5%, and retail sales growth fell from 7.7% a year ago to 3.7% this past May.
Although there was an especially pronounced bounce of optimism among business owners in the final month before the 2018 election, that positive mood could quickly dissipate if respondents fail to see evidence on which to sustain those expectations, and such a shift could deflate the buying and investment plans of consumers and producers alike.
Keep in mind that Banco de México’s recent decision not to raise rates was predicated on the idea that there is enough slack to allow the economy to expand without generating increased core inflation pressures.
Now read on...
Register to sample a report