- The National Institute of Statistics and Geography (INEGI from its former name in Spanish: Instituto Nacional de Estadística, Geografía e Informática) published the final GDP figures for 4Q24 today (21/02), revealing a contraction of 0.6% QoQ, which translated into annual growth of 1.2%.
- Specifically, the economy slowed significantly in 4Q23, 1Q24 and 2Q24, as the quarterly growth rates in these periods inched up 0.1%, 0.1% and 0.2%, respectively.
- The economy rebounded in 3Q24, but some leading indicators suggested a potentially unfavourable performance in 4Q24.
- Moreover, from early 2024, we signalled a further decoupling between the US and Mexico economies, which given the former’s recent resilience, we saw as a warning sign. Consequently, from the start of 2024 - and contrary to market consensus - we anticipated that the Mexican economy would expand by approximately 1.5% YoY.
- Sluggish growth during 2024 was significantly influenced by agricultural activities, mainly due to the severe droughts affecting the entire country in the first two quarters of 2024.
- However, the main driver of the economic slowdown was industrial production, which grew by a moderate 0.1% YoY at the year-end, partly due to stagnant US industrial production, although other factors also contributed to this underperformance.
- While the services sector helped mitigate the impact of lower industrial production, on the back of brisk consumer dynamics after minimum wage hikes, strong remittances and historically low unemployment rates, signs of a slowdown in some services were evident.
- Looking ahead, we anticipate that the Mexican economy could grow by around 0.6% in 2025, albeit with a downside risk, as several challenges persist.
- In this context, we stand pat on our view that Banxico will cut the reference rate by 50 basis points in its next meeting (27/03), and that it will further cut the reference rate, so that it could end the year at 8.0%. Hence, we still find value in Mbonos. Our near-term view for the MXN remains rather bearish, as the risks related to US trade policy will continue to lead to increased volatility.