Signs emerge of slower economic growth in Mexico

What’s happened?

According to preliminary estimates by the national statistics institute (INEGI), GDP grew by 0.1% in seasonally adjusted terms in the fourth quarter of 2023 compared with the third. This represents one of the slowest quarters of growth in Mexico since the pandemic, which suggests that the economy’s strong upward momentum might have already begun to ease.

Why does it matter?

The results from the fourth quarter of 2023 are the weakest since the third quarter of 2021, when the Mexican economy last experienced a (brief) sequential contraction. Performance was poor among the three main supply-side sectors, with services up by just 0.1% quarter on quarter, while industry remained flat and agriculture contracted by 1.1%. Cold weather spells late in the year may have had an impact on agricultural performance. Meanwhile, industrial production contracted across the board in November, including in construction, which had a strong year otherwise. INEGI did not provide any subsectoral data in the preliminary GDP release. In year-on-year terms, growth came in at 2.4%, which resulted in overall annual growth of 3.2% in 2023—below our estimate of 3.4%.

The poor results suggest that the momentum in the Mexican economy, which was clear until the third quarter, has begun to weaken. This is evident in other data such as capital investment, which shows signs of cooling, having surged since late 2022. Business confidence has also declined in the construction and manufacturing sectors and remained flat in the retail sector. Nevertheless, other indicators suggest that the economy is still going strong; for example, unemployment was at a historic low in 2023 and has shown no signs of deterioration. Considerably lower inflation, coupled with expectations of global monetary easing in the first half of the year, also indicates a relatively benign external outlook in the short term, which would support growth.

What next?

EIU’s forecast of 2.4% economic growth in 2024 is unchanged, although the fourth-quarter result raises the risk that the slowdown in economic activity in the first half of the year could be more pronounced than we currently expect.

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