Economics: Continuing tear in construction is a major driver of GDP growth, but the data is both uneven and demanding of further review
Mexico’s economy is currently estimated by analysts to have grown 3.2% in 2023, a result in line with what the Ministry of Finance projected in the general economic assumptions text (CGPE) and significantly higher than the roughly 1.0% increase the market consensus anticipated at the beginning of last year. Analysts have grown more bullish in recent months largely thanks to a surprising acceleration of construction activity, which expanded a real 13.7% yoy between January and September 2023, concentrated in an 80.3% rise in civil engineering works, with the strongest expansions recorded by that segment for the second (101% yoy) and third (121%) quarters. Non-residential private construction has also shown high growth, mainly in the expansion of installed capacity for manufacturing and complementary services, while residential construction continues to lag behind.
Although significant growth is apparent in public works, the inconsistency between the physical investment figures reported by the Ministry of Finance and those of Inegi, as well as the divergent behavior of the production of basic construction inputs such as cement and concrete, among other factors, could eventually prompt Inegi to revise the figures downward, and in the process, negatively adjust total GDP growth for 2023. This week’s Economic Outlook analyzes the recent performance of construction and its impact on GDP growth for 2023, as well as its outlook for the coming year.
With respect to the week's indicators, for October 2023 the coincident indicator of the economy showed growth stumbling to its most moderate increase in eleven months, while the leading indicator for November inched a mere 0.01 points higher based on an identical reading in the business confidence component for investment at the same time as the manufacturing employment trend index fell for a tenth consecutive month. The consumer inflation report for December is due out this week, and we expect it to show a rise to 4.5% as agricultural prices have been rebounding in the past two months.
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