Economic Analysis - Modest Uptick In Growth Amid Mounting Risks - MAR 2018


BMI View: Economic growth in Mexico will accelerate modestly in 2018 , supported by oil production gains and resiliency in the manufacturing and service sectors . Growth will be capped by weak fixed investment due to heightened political risk. Moreover, we acknowledge considerable downside risks to growth stemming from NAFTA renegotiations and the upcoming presidential election.

Mexican real GDP growth will accelerate modestly in 2018, supported by moderate gains in the manufacturing and service sectors following a weak H217. Additionally, after more than a decade of declines, our Oil & Gas team forecasts crude production will stabilise and begin to rise in the coming quarters, turning a persistent headwind into a tailwind in 2018. However, Mexico's economy enters 2018 with poor momentum and will face headwinds stemming from political uncertainty, tighter monetary policy, and reduced public spending.

We forecast real growth to accelerate to 2.1%, from an estimated 2.0% in 2017, but remain well below the 3.1% average seen since the end of the global financial crisis in 2010. We also note downside risks stemming from a potential disruption of US-Mexico trade relations amid ongoing North America Free Trade Agreement (NAFTA) renegotiations and a possible shift in domestic policy, should leftist-populist candidate Andres Manuel Lopez Obrador (AMLO) win the July presidential election ( see ' Crib Sheet: AMLO Early Favourite As Field Takes Shape ' , December 18 2017, and ' NAFTA Update: Lack Of Progress Puts Deal In Increasing Jeopardy ' , November 23 2017).

Investment Will Remain Weak In 2018
Mexico - Real GDP By Expenditure, % y-o-y
Source: Banxico, BMI

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