Mexico City — Mexico’s economy is poised to experience a sluggish start to the second half of 2024, continuing the inertia seen in the first half, which could result in lower-than-expected growth for the entire year. According to the latest data from the Timely Indicator of Economic Activity (IOAE) of the National Institute of Statistics and Geography (INEGI), economic activity showed only a slight increase of 0.1 percent in June and is projected to decline by 0.1 percent in July.
The IOAE’s nowcast reveals a range of possible outcomes for June, with economic activity potentially growing by as much as 1 percent or contracting by as much as 0.9 percent. For July, the range is similarly volatile, with predictions spanning from a 0.8 percent increase to a 1 percent decline.
Tertiary and Secondary Sectors Show Signs of Weakness
A closer look at the data reveals that Mexico’s tertiary sector, which encompasses trade and services, is expected to experience a monthly decrease of 0.1 percent in both June and July. This sector is a key driver of the country’s economy, and its underperformance raises concerns about the overall health of economic activity.
In the secondary sector, which includes construction and manufacturing, there was a modest increase of 0.4 percent in June. However, this momentum is not expected to continue, as projections for July indicate a decline of 0.2 percent. The manufacturing industry, in particular, has been losing steam, contributing to the broader slowdown in economic activity.
GDP Growth Remains Tepid in the First Half of 2024
The Mexican economy has been characterized by a lack of dynamism in the first half of 2024. Domestic consumption has slowed amid rising inflation, and the formal labor market has shown signs of weakening. These factors, combined with a lackluster performance in the industrial sector, have led to a subdued economic environment.
On an annual basis, the IOAE indicates that Mexico’s GDP is expected to grow by 1.3 percent in June, with growth slowing further to 1.1 percent in July. This marks a deceleration from the earlier months of the year, reflecting the challenges facing the economy.
The services sector, a significant contributor to GDP, is projected to grow by 1.9 percent year-over-year in June. However, this growth is expected to taper off in July, with a predicted increase of only 1.6 percent. This decline in momentum is indicative of the broader slowdown affecting the economy.
The industrial sector’s performance has been even more concerning. After recording a 0.4 percent year-over-year growth in June, the sector is expected to eke out only a 0.1 percent increase in July. If confirmed, this would represent the weakest industrial growth since November 2021, underscoring the challenges facing Mexico’s manufacturing and construction industries.
Expert Opinion: A Worrying Slowdown
Economists are increasingly concerned about the trajectory of Mexico’s economy. Alejandro Gomez, the general director of the Group of Advisors on Economics and Public Administration (GAEAP), highlighted the gravity of the situation. “The Mexican economy is showing signs of a worrying slowdown. Despite the huge fiscal deficit of 5.9 percent of GDP, the economy has lost strength,” Gomez said.
The substantial fiscal deficit, which the government has maintained in an effort to stimulate growth, appears to have had limited impact. Instead, the economy’s underlying weaknesses, particularly in domestic consumption and the industrial sector, are becoming more pronounced.
Outlook for the Rest of 2024
The outlook for Mexico’s economy in the second half of 2024 is increasingly uncertain. The sluggish start to the third quarter, coupled with the challenges seen in the first half, suggests that achieving robust growth this year may be difficult. Analysts are closely watching the developments in key sectors such as manufacturing, services, and construction, as well as the broader macroeconomic environment, to gauge the potential for recovery or further slowdown.
As the year progresses, policymakers may need to consider additional measures to support economic growth, particularly in light of the ongoing challenges posed by inflation, labor market weaknesses, and the lackluster performance of the industrial sector. The coming months will be crucial in determining whether Mexico can overcome these hurdles and return to a path of stronger economic growth.
