Economics: Despite recent consumption and investment growth, the outlook remains weak for the next two years
The latest private consumption and gross fixed capital formation data showed their main indexes experiencing growth at January in an extension of what has been a recovery trend for almost a year and a half. The rise in GFCF extended to construction as well as to spending on both imported and domestic machinery and equipment. But while such investments have managed to bounce back from the depths of the pandemic-induced lows of 2020 and 2021, they have yet to even reach the weakened levels of late 2018 and 2019.
One bright spot in recent economic news is the extent to which capital goods imports have shown substantial growth that allowed such spending just this past February to surpass 2019 levels, as they benefited to a large extent from the continuing strength of the peso exchange rate. However, that positive trend is threatened by the likelihood of rising capital goods prices. In fact, Mexico’s investment performance appears to be slipping back into the pattern of flat-to-sluggish growth that first emerged as 2019 got underway.
We can see a similar mix in private consumption trends. The private consumption index for January expanded by more than seven percent, but has barely inched back to levels of three years prior (2019). Structural weaknesses in the domestic market and a complicated external environment will result in diminished Mexican market growth potential at least over the next two years.
Current GFCF levels imply a weakening of GDP growth potential that is unlikely to deliver the minimal levels of well-paid job creation growth needed to catalyze consumption and overcome the relative economic stalling cycle over an intermediate time horizon. The 1.9% rise in GDP that we anticipate in 2022 would leave the economy 2.0% below that of 2019, a lag entailing a considerable reduction in per capita GDP, with profoundly negative repercussions for household incomes and poverty levels, further aggravated by the steady rise in inflation, which reached a 21-year high in March, along with another disproportional rise in the cost of the food basket and of basic goods.
Now read on...
Register to sample a report