Mexico’s economic growth slowed more than expected in the second quarter of 2024. According to preliminary data from Mexico’s national statistics institute, GDP grew by just 0.2% compared to the previous three months. This was the lowest forecast in a Bloomberg survey of economists.
From a year ago, GDP expanded by 2.2% in the quarter. This was also less than the 2.4% median projection. Mexico’s economy is forecast to slow for a third straight year in 2024.
It is expected to slow for a fourth year in 2025. However, increased government spending before the June national elections helped support growth. Agriculture fell 1.7% in the quarter after heavy droughts impacted production and prices.
Manufacturing and services each managed small gains of 0.3%. “The weakness was pretty broad-based,” said Kimberley Sperrfechter, an emerging markets economist at Capital Economics. She sees activity expanding 1.5% this year, below the average forecast of 2% in a Bloomberg survey.
Mexico’s Q2 economic performance
Domestic demand had previously bolstered the economy as consumers continued to spend. However, weakness in the US, Mexico’s largest trading partner, affected exports.
The peso also faced volatility and slid in value after June’s election. Banco de Mexico held rates at 11% at its most recent decision in June. Economists are divided over whether it will cut rates by 25 basis points in August or hold until September.
Inflation has accelerated since March, although some central bank board members noted the drivers were concentrated in the non-core component. “Growth was a little underwhelming but not necessarily a precursor to a recession,” said Brendan McKenna, a strategist at Wells Fargo. “Mexico is still on pace to grow around 2% this year, so I don’t think this will be a material input into the next rate decision.”
Governor Victoria Rodriguez stated that the board is open to ongoing rate-cut discussions.
In June, one board member voted for a quarter-point drop, suggesting that others may also see the cause of a cut. In a recent Citi survey, economists forecast the critical rate will likely move in August and end 2024 at 10.25%. They also forecast growth of 1.9% in 2024 and 1.5% in 2025, with inflation seen dropping to 4.4% by year-end.
“Board members have emphasized the country’s economic weakness, so this data supports our call for a 25bp cut,” said Gabriel Casillas, managing director at Barclays Capital Inc.
