Economics: November data shows further slowing as the country faces new inflation pressures

MEXICO - Report 29 Nov 2021 by Mauricio Gonzalez and Francisco González

In recent months indicators have been reflecting a slowing of economic activity relative to the first half of this year, a scenario we had long incorporated into our GDP estimate for full-year 2021. The news published in November only added to that picture.

In many respects economic activity continues to gradually regain some sense of normalcy in tandem with progress in vaccinating the public against Covid-19, and consumer optimism is still firming, but industrial activity contracted on a seasonally adjusted basis in September, principally due to a softening of manufacturing activity as the country’s non petroleum exports have been contracting. Last week’s GDP report for the third quarter revealed a contraction of activity compared to 2Q 2021, marking a clear point of inflection compared to the recovery trend of the first half of the year.

And even as the economy slows, the country faces growing inflation and monetary policy challenges. The 12-month rate of consumer inflation accelerated to 7.05% during the first half of November, mainly driven by its non core component, although core prices also climbed significantly. In addition to the general factors driving inflation globally, upward pressure continues to grow in Mexico on the level of contract wages.

Banco de México’s policy board recently emphasized the uncertainty surrounding the country’s growth and inflation risks while extending its tightening cycle by raising the same-day interbank reference rate another quarter point. With the government expected to win Senate confirmation for its nominee to preside over Banco de México, the central bank could soon be facing more challenges.

And while tourism is one sector that Mexico can generally rely upon to help its economy through rough times, as of the third quarter there was no evidence of a clear recovery in tourist flows or in the revenues of the main branches of industry that supply the sector. There are also visible risks that could cause the industry to experience a relapse of the more difficult times it experienced earlier in the pandemic, including the rise of new variants and increasing insecurity in tourist areas.

Now read on...

Register to sample a report