Mexican Economy Continues To Grow Well Above Trend

• In line with Fitch Solutions' expectations, the Mexican economy expanded by 0.9% on a q-o-q basis (3.6% in annualised terms) in Q223.
• Growth largely matched Q123’s impressive 1.0% rate, which helped to keep the y-o-y rate steady at 3.7% (Bloomberg consensus: 3.4%).
• No expenditure breakdown is available yet, but the high-level sectoral figures published by the Mexican statistics office showed that growth was reasonably broad-based. The tertiary sector performed particularly strongly (+1.0% q-o-q, 4.1% annualised), aided by tight labour market conditions and easing inflation.
• With this new data being in line with expectations, Fitch continues to forecast that the Mexican economy will grow by 3.0% this year and 1.6% in 2024, with risks to both of these projections, tilted to the upside.
• Fitch has recently revised sharply higher US real GDP growth projection (from 1.6% to 2.1%), reflecting the updated view that the economy is unlikely to fall into recession until Q224. For Mexico, this implies that activity in export-oriented sectors will continue to hold up reasonably well, remittances will remain solid, and strength in inward FDI flows will persist.
• Growth should still slow as the Mexican peso’s rapid appreciation is more noticeably felt over H223, while there is a risk the Banxico rate cuts that were currently pencilled in for Q423 will be pushed to 2024. That said, even with these headwinds the deceleration may not be as sharp as Fitch’s forecast implies. The company, therefore, noted that they would be updating their projections in light of incoming data before end-Q323.

(Source: Fitch Solutions)