Economics: Indicators in September suggest the recovery may be slowing
Economic data released in September provided further confirmation that the Mexican economy continues to sustain some momentum as the country’s vaccination efforts advance, with just over half of the population's having received at least one dose, and there is a further relaxation of mobility restrictions. Banco de México even raised its main GDP growth scenario for 2021 in its most recent quarterly inflation report. But several key indicators have begun to lose steam – industrial activity, private spending and retail industry results are all cases in point – and most indicators are still below their pre-pandemic period readings, although manufacturing employment was one positive exception last month.
Some of that relative stalling can be explained by the extent to which year-earlier comparisons are no longer as easy as they had been relative to the extreme shocks of the first months of the pandemic. However, there are also signs that the supply chain issues playing out globally as well as continuing uncertainty as to the future course of the pandemic are beginning to weigh locally.
And while the complicated trajectory of public finance has been weighing for some time, last month’s release of federal budget proposals for 2022 further clouded the outlook as the absence of a fiscal reform initiative combines with optimistic revenue projections even as plans call for stepped-up spending heading into the last half of López Obrador’s administration, thereby raising questions about the government's capacity to keep a lid on the deficit.
The economic data published late last week showed the economy growing 7.7% early in the third quarter even as the monthly GDP proxy remains more than three points shy of pre-pandemic averages. And while this year’s high consumer inflation peaked above 6% in April, it also edged back up through the first half of September. It was a further reminder of the extent to which international inflation and production bottlenecks are pushing prices higher, prompting Banco de México last Thursday to raise its future inflation estimates and to implement a third straight interest rate hike.
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