Mexico’s growth slows in Q2 as high rates cool demand

Mexico’s economic growth unexpectedly slowed during the second quarter of the year, with GDP increasing by just 0.2 per cent, below the 0.4 per cent forecast.

The country’s GDP rose 2.2 per cent Year-over-year (YoY), falling short of the 2.4 per cent estimate, according to data released by The National Institute of Statistics and Geography (INEGI). This deceleration is attributed to high interest rates cooling demand, despite increased federal spending before the June elections.

Janneth Quiroz Zamora of Monex Casa de Bolsa noted that high rates have dampened credit and remittances, countering the positive impact of early public spending. Domestic consumption remained strong, but volatility in the peso and weaker US demand affected exports.

Banco de Mexico held its key rate at 11 per cent in June, with economists split on whether a 25 basis-point cut will occur in August or September. Inflation has risen since March, though primarily in non-core areas.

Jessica Roldan of Casa de Bolsa Finamex anticipates continued growth deceleration, with potential downward pressure on prices prompting a rate cut. Economists surveyed by Citi predict a rate cut in August, with the key rate ending 2024 at 10.25 per cent, and forecast 2024 growth at 1.9 per cent and 2025 growth at 1.5 per cent.

Moreover, inflation is expected to drop to 4.4 per cent by year-end.

Attribution: Bloomberg & The National Institute of Statistics and Geography (INEGI) data