According to preliminary figures released by the INEGI, the Mexican economy contracted 0.6% QoQ in 4Q24, showing a slight annual growth of 1.3% in 2024. The 4Q figure fell short of market consensus of -0.2% QoQ as well as our own bias (-0.1% QoQ). However, the annual print (1.3%) matches our long-standing expectation for growth of 1.5%.
Although the decline in agricultural activities (-8.9% QoQ) contributed significantly to this contraction, the core weakness in the Mexican economy stems from a downturn in industrial production (-1.2% QoQ; 0.1% over the year).
Conversely, services have remained resilient (0.2% QoQ), but the sector has been decelerating since 2022, although it was able to expand by 2.2% in 2024.
The MXN will remain highly volatile in the near term due to the plethora of lingering risks. We have been negative on the MXN since 2Q24 and we maintain our bearish call. Technical levels will be key in the short term, with support at the 50-day moving average (~USDMXN20.41) and resistances at 20.80 and 21.0). There could be an overshooting towards our short-term target of 21.50 if universal tariffs are implemented.
In this context, we expect a 50 bp interest rate cut in the upcoming monetary policy meeting (6/02), as both economic activity and inflation dynamics support such a move. We maintain our directional preference for the 2-5Y tenors of the MBono curve, as we still expect Banxico to cut more than is currently implied in the nominal curves. In the near term, however, we prefer the 5Y, as the very short end is already incorporating a more dovish stance by the central bank.