Mexican economy update
Jesús Cañas and Ana Plunger
May 24, 2023
|April 2023 Economic Report|
|consumer price index
|QoQ 4.5%||109,200 jobs m/m||6.2% YoY||18.1|
Mexico’s gross domestic product (GDP) grew at an annual rate of 4.5% in the first quarter, accelerating from 1.8% in the previous quarter. A surprise upswing in the services sector and exports pushed first-quarter production growth above analyst expectations of 3.2%. Nevertheless, his consensus forecast for 2023 GDP growth (Q4/Q4) compiled by the Banco de Mexico was flat at 0.7% as of April.table 1).
2023 Mexican Growth, Inflation and Exchange Rate Consensus Forecasts
|Real GDP growth rate (Q4/Q4)||0.7||0.7|
|Real GDP (annual average)||1.4||1.6|
|CPI (December 2023/December 2022)||5.2||5.1|
|Exchange Rate – Peso/Dollar (year-end)||19.4||19.1|
Recent economic data in Mexico have been mixed. Exports, retail sales and employment increased while industrial production fell. Inflation has subsided and the peso has strengthened further against the dollar.
First Quarter Production Increases
Mexico’s first-quarter GDP grew 4.5% annually, according to latest estimates (Chart 1). Service-providing sectors (wholesale, retail trade, transportation, business services) increased by 1.5%, while goods-producing sectors (manufacturing, construction, public works, mining) increased by 0.7%. Agricultural output fell by 3.2%.
Industrial production declines in March
The three-month moving average of Mexico’s industrial production (IP) index, which includes manufacturing, construction, oil and gas extraction and utilities, fell 0.1% in March, while the smoothed manufacturing IP index fell 0.4%. . (Figure 2). North of the border, the smoothed US IP index rose 0.2% in April after rising 0.3% in March. Intellectual property in the United States and Mexico has been increasingly correlated with increased intra-industry trade between the two countries since the early 1990s. Mexico’s manufacturing could slow further if US consumer demand slows further this year in the face of high inflation and credit costs.
Exports will gradually increase in March.oil exports decline
The three-month moving average of Mexico’s total real exports in March increased by 0.7% from the previous month, while oil exports fell by 3.5%. However, the much larger manufacturing sector he rose 1.0% (chart 3). Total exports from the beginning of the year to March increased by 1.1% compared to the same period in 2022, manufacturing exports increased by 2.7% and oil exports decreased by 19.3%.
February retail sales continue to rise
The three-month moving index of real retail sales in February rose 0.6% (chart 4). The smoothed retail sales index increased 3.7% year-on-year. Mexico’s domestic market is relatively strong, which could mitigate a decline in manufacturing exports due to a possible slowdown in the US economy.
Employment increased in April
Public sector employment (employment receiving government benefits and pensions) increased by 6.2% (109,200 jobs) in April, after increasing by 7.8% in March. (Figure 5). Total employment, equivalent to 58.3 million workers, including employment in the informal sector, increased by 3.1% year-on-year in Q4 2022. The unemployment rate was 2.8% in March, unchanged from February.
Peso continues to rise against dollar in April
The Mexican currency averaged 18.1 pesos to the dollar in April, higher than the March average of 18.4 pesos to the dollar, the strongest average since September 2017. (Figure 6). This is the sixth straight month of gains against the dollar. In April, the peso rose 4.0% from its pre-pandemic value. The peso has remained relatively stable over the past two years in the face of high inflation, uncertainty and global headwinds. Anticipating US interest rate hikes and global inflation, and in response, the Bank of Mexico’s aggressive rate hikes likely contributed to this stability.
Remittance stopped in March
The three-month moving average of real remittances fell 1.5% in March after rising 0.8% in February. (Chart 7). Despite the month-on-month decline, remittances are near record levels.
Foreign debt fell in April
The three-month moving average of foreign Mexican government bonds fell to 16.1% in April. (Figure 8). Non-resident holdings of government debt are an indicator of Mexico’s exposure to foreign investors and an indication of confidence in the Mexican economy. It is worth noting that this measure has been on a downward trend since 2015. Long-term government bonds account for 81.9% of foreign-owned Mexican public debt.
Inflation continues to slow in April
Mexico’s consumer price index (CPI) rose 6.2% in April compared to the last 12 months. This was down from 6.9% in March and marked the lowest inflation rise since October 2021. (Figure 9). CPI core inflation, which excludes food and energy, also trended downward to 7.7% in the 12 months to April. Mexico’s central bank kept its base rate unchanged at 11.25% in May. It was the first time the central bank had paused tightening after 15 consecutive rate hikes dating back to June 2021. However, the central bank said in a statement that inflation risks remained on the upside. Therefore, the base interest rate will be maintained at the current level for a long period of time.
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