Mexico Economic Forecast

After expanding 0.5% quarter on quarter in Q4, the economy beat market expectations with a 1.1% expansion in Q1. The services sector drove the reading amid easing inflation, strong remittances, rising consumer confidence, wage gains and a lower unemployment rate. Industrial output also saw growth, likely aided by the automobile sector: Vehicle production surged in Q1 in both annual and quarterly terms. In contrast, the primary sector contracted. Turning to Q2, sequential momentum is likely easing, with consumer confidence and the non-manufacturing PMI dropping in April from March. In April, Parliament approved changes to the mining law, including the requirement for mining firms to reinvest in local communities and a shortening of mining concessions; the changes could make private investment less attractive and spur formal complaints from Canada or the U.S. under the USMCA trade deal.

Inflation fell to 6.3% in April, below March’s 6.8% but still more than double the Central Bank’s 3.0% target. April’s result marked the lowest inflation rate since October 2021. Our panelists see inflation falling further in the coming quarters on a tough base effect, high interest rates and mild external price pressures, but staying above target throughout the year.