Mexico economic growth tops forecasts on services and exports

Mexico’s economy grew more than expected in the second quarter as private consumption remains robust and the country benefits from strong exports to the US, its largest trading partner.

Gross domestic product rose 0.9% from the previous three months, above the 0.8% median estimate of analysts surveyed by Bloomberg. From the same period a year ago, GDP grew 3.7%, more than economists’ 3.3% forecast, according to preliminary data released by Mexico’s national statistics institute Monday.

Mexico “has shown notable strength despite the global economy already showing signs of a slowdown,” Deputy Finance Minister Gabriel Yorio said at a press conference Thursday. 

Latin America’s second-largest economy has been boosted from an inflow of investments from companies expanding operations in the country, in a process known as nearshoring. Exports have hit record highs in the last few months, and in June, the country posted an unexpected trade surplus as the value of oil imports fell while the flow of goods sold to the US remained robust.

“Mexico is following in the footsteps of the United States to become more dependent on exports caused by foreign direct investment,” said Gabriela Siller, director of economic analysis at Grupo Financiero Base.

Inflationary pressures have been gradually cooling, driven by double-digit interest rates and the strong rally of the “super peso.” While consumer price increases have eased for the last three months, they’re still above the target of 3%, plus or minus a percentage point.

The peso remains the second-best performing currency in emerging markets year-to-date with accumulated gains of almost 17%. The currency recently touched its highest level since 2015, supported by high interest rates, nearshoring and strong remittances. 

Over the past 12 months, the cumulative flow of remittances totaled $60.8 billion, the highest on record, and they are on track to reach approximately 4% of Mexico’s gross domestic product this year. 

Banxico, as the central bank is known, still hasn’t declared victory over inflation, pledging to keep rates at restrictive levels until inflationary pressures decline in a “sustained manner.” 

Mexico’s key interest rate has been kept unchanged at 11.25% for the last two meetings, with policymakers opting not to discuss a timeline on when they might begin cutting rates.

Economists in the most recent Citibanamex survey of economists projected 2023 economic growth of 2.4%, up from 1.9% in early May. In 2024, the economy is expected to grow 1.5%.

The economy continues to expand at a steady pace, Yorio said, adding that he sees growth of 3% this year.