The Mexican Economy Shows Its Best Growth in Nearly Two Years
In the month of February, Mexico's economic activity experienced its largest growth in almost two years, surpassing market expectations and countering predictions that the second-largest economy in Latin America could have entered a technical recession in the first quarter of the year.
The Global Economic Activity Indicator (IGAE) rose by 1% compared to the previous month, a rate not seen since April 2023, according to seasonally adjusted official data released on Friday. However, on an unadjusted basis, there was a year-on-year decline of 0.7%. The market had expected a 0.6% monthly growth for this period, and analysts noted that much of this improvement was due to a temporary increase in production right before complications arose from U.S. trade policies. Some, however, pointed out that economic weakness is still present. "This is a positive report, but it’s likely that much of the rebound reflects a temporary rise in production before tariff disruptions start," commented Andrés Abadía, chief economist for Latin America at Pantheon Macroeconomics. "We still project a slowdown in growth over the coming months, as high global risks impact capital spending, private consumption, and job creation," he added. Secondary activities, which include manufacturing, led the growth with a 2.5% increase, the highest since August 2020. Primary activities, covering agriculture, fishing, and mining, grew by 1%, while tertiary activities, which include services, rose by 0.6%. The data released on Friday led some analysts to revise their GDP estimates for the first quarter upward, with the official figure set to be announced next week. "With the encouraging data from February and the early information from March, we estimate that the quarterly GDP change will be flat, better than the 0.2% contraction that was expected before this surprise," stated Grupo Financiero Banamex. For several months, institutions like Citi have warned about the possibility of the Mexican economy entering a technical recession in the first quarter due to the impacts of the global trade war, although the government has denied that the country is facing an economic contraction. This week, the International Monetary Fund (IMF) forecasted a 0.3% decline in Gross Domestic Product (GDP) this year, a significant revision from its January projection that anticipated a 1.4% increase.
It’s encouraging to see this rise in economic activity, but it’s crucial to remain cautious. International factors, such as the trade war and IMF projections, can significantly impact Mexico's future growth. The key will be how the country manages these challenges to maintain sustained growth and avoid potential recessions in the upcoming quarters.
