Mexican Real GDP Growth Surprises To The Upside

• Mexican economic activity remained robust in Q123, with real GDP growth picking up from 0.5% q-o-q (3.6% y-o-y) in Q422 to 1.1% q-o-q (3.9% y-o-y). This was well above both Fitch’s and consensus estimates, which sat below 1.0%.
• No expenditure breakdown is available as of yet, but preliminary output data from the National Institute of Statistics and Geography (INEGI) suggest that growth was broad-based.
• Helped by the continued resilience of the US economy, the export-oriented secondary sector grew by 0.7% on a q-o-q basis (2.6% y-o-y), while a 1.5% (4.3% y-o-y) expansion of the tertiary sector pointed to strength in domestic demand.
• In response to the Q123 results, Fitch has revised up its average annual forecast for real GDP growth in 2023 even further from 1.8% to 2.2%. Fitch remains considerably more bullish than consensus, which has pencilled in a 1.4% expansion this year.
• Mexican real GDP growth is being underpinned by three key factors, namely, significant FDI inflows, linked to the near-shoring phenomenon (close proximity to the USA); persistent strength in US economic activity that has helped to support Mexican export growth and remittances and; the government’s move in January to raise the minimum wage by 20% and the public pension by 25% that has boosted domestic demand.
• Notably, the apparent resilience in domestic demand also poses some upside risks to the interest rate forecast. Currently, Fitch sees the Bank of Mexico’s (Banxico) policy rate rising by a final 25bps to 11.50% in June, before being cut to 11.00% by year-end.

(Source: Fitch Solutions)