Economic Analysis - Muted Growth Ahead Amid Weak Investment And Services Slowdown - NOV 2017


BMI View: A slowdown in Mexico ' s service and manufacturing sectors will cause growth to decelerate in the latter half of 2017 . Economic activity will accelerate modestly in 2018 as political and trade risks abate and production in the oil and gas sector begins a gradual recovery.

Mexican real GDP growth will slow in H217, before beginning a gradual rebound in 2018. The near-term impact from the two earthquakes that struck the country in September is likely to be largely mitigated by reconstruction and fiscal stimulus coming in the wake of the natural disasters. However, persistent sluggishness in the industrial sector, coupled with a slowdown in service sector growth will weigh on real GDP in the final months of the year. While we have revised up our forecast for 2017 real growth to 2.0%, from 1.8% previously on the back of stronger than expected manufacturing sector activity in the first half of the year, our forecast still implies a slowdown in H217 and we remain below consensus of 2.1%.

In 2018, an uptick in oil and gas production underpins our view for a modest acceleration in real GDP growth. Our Oil & Gas team forecasts that a decade-long decline in Mexico's oil and gas production will likely bottom in 2017, and expects incremental gains in 2018 and 2019. However, compared to historic levels, we expect real GDP will remain relatively weak. Investor fears over the impact of North America Free Trade Agreement (NAFTA) re-negotiations and concerns over the potential for a shift in policy following the 2018 general election will keep foreign investment on the sidelines. As a result we forecast real growth to modestly accelerate to 2.1% in 2018, but remain below Mexico's five-year average of 2.5% (2012-2016).

Services Sector To Slow Further
Mexico - Real GDP By Output, % y-o-y
Source: Banxico, BMI

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