Mexico: Economy remains strong but expectations remain cautious - Wells Fargo

Mexican GDP increased a more than expected 0.6% in Q2 compared to the first quarter, explained analysts from Wells Fargo. They added that the economy weakened compared to the same quarter a year earlier, from 2.8% in Q1 to 1.8% in Q2.

Key Quotes: 

“Reading the Mexican GDP numbers for the second quarter is not easy when you have to look at year-over-year changes for years in which Easter falls in the first quarter of the year (2016) compared to the second quarter of the year (2017). Even looking at quarter-over-quarter changes is tricky to interpret during these years, and 2017 is one of those years. According to the INEGI, the Mexican statistical office, the Mexican economy grew a stronger than expected 0.6 percent in the second quarter of the year.”

“Once again, the tertiary sector, that is the service sector, was up a very strong 0.8 percent and 4.1 percent on a year-earlier basis. This would imply that the Mexican consumer remained very strong, just as was the case during the first quarter of the year.”

“Perhaps the biggest risk remains the central bank’s monetary policy tightening campaign, which has taken the target interest rate from 3.00 percent in November 2015 to 7.00 percent today. This more than doubling in interest rates has yet to be reflected on domestic consumption, and thus, remains the biggest threat for an improvement in economic activity during the second half of the year.”