Economics: US industry’s stalling trend and the super peso continue to undercut Mexico's manufacturing

MEXICO - Report 16 Apr 2024 by Mauricio Gonzalez and Francisco González

Last week’s industrial activity report for February confirmed a continuation of its slowing trend. The construction sector remained almost the only source of growth but its pace slowed to a rate well below the average of the previous nine months.

US industrial production’s stalling trend dating back to the beginning of 2023, specifically in its factory component, has taken a toll on Mexican manufacturing. While the dominant automotive branch grew in February for the first time in three months, it edged only slightly higher despite strong exports driven by continuing US vehicle demand. But the stagnation of US manufacturing production has had its strongest impact on Mexican non-automotive manufactures, which have been seriously underperforming their automotive counterparts since late 2022. And that effect has been compounded by the significant firming of the peso since last year, which has begun to take a greater toll this year by stoking demand for imported goods at the expense of companies in Mexico that produce for the domestic market.

Although a gradual recovery of exports can be expected in the coming months, manufacturing production will continue to face greater competition from abroad in final goods within the branches focused on supplying the domestic market given the current levels of the exchange rate. This aspect has increased its impact in recent months and could be a factor of economic weakening during the first half of the year.

In this week’s Outlook we delve further into the latest numbers and analyze which branches have been most affected by greater import inflows, as well as the broader implications of these trends going forward.

Now read on...

Register to sample a report