Mexico: GDP falls in Q2 amid weak domestic demand
Expenditure-based national accounts released by the Statistical Institute (INEGI) on 20 September confirmed output fell 0.8% in year-on-year, unadjusted terms in the second quarter, contrasting the 1.2% expansion in Q1. This marked the first economic contraction since late 2009. Meanwhile, in seasonally-adjusted, quarter-on-quarter terms, the economy flatlined in Q2 and thus only narrowly avoided a technical recession (Q1: -0.3% quarter-on-quarter, seasonally adjusted).
The second quarter’s drop reflected frail domestic demand. Fixed investment dived 7.3% year-on-year, following the 0.8% fall in Q1 and marking the sharpest contraction since Q4 2009, amid hammered business confidence partly due to lingering economic policy uncertainty related to Andrés Manuel López Obrador’s presidency and U.S. tariff threats. Moreover, government spending contracted 2.3% (Q1: -0.8% year-on-year) as the government has squeezed spending in order to maintain its commitment to run a fiscal surplus. Meanwhile, household consumption fell 0.3%, contrasting the 1.1% expansion in Q1, likely reflecting a subdued jobs market.
Conversely, the external sector contributed positively to growth in the second quarter. However, this was largely due to falling imports, reflecting frail domestic demand. Imports of goods and services fell 1.4% year-on-year, dropping for the first time since Q4 2013 and contrasting the 1.9% increase registered in Q1. Meanwhile, export growth moderated slightly to 2.5% from 2.7% in the previous quarter.
Looking ahead, the economic environment remains challenging due to weak domestic demand and external headwinds. Prevailing policy uncertainty and lower business confidence are likely to continue to weigh on investment and consumption, while renewed trade tensions with the U.S. and waning global demand also dampen the outlook.