The latest economic indicators for Mexico provide a positive outlook for the country’s financial health. The annual inflation rate has declined, reaching 4.44%, the lowest since March 2021. That marks the ninth consecutive fortnight of decreasing inflation.
Additionally, the country’s economic activity showed growth for the fourth consecutive month. In July, economic activity increased by a seasonally adjusted 0.2% compared to the previous month, and the annual growth rate stood at 3.5%. This growth was largely driven by the construction and manufacturing sectors, with impressive annual growth rates of 12.49% and 1.99%, respectively.
The secondary sector of the country’s economy also saw significant annual growth of 3.85%. The services sector experienced growth of 3.22%, with the retail trade sector particularly standing out with a growth rate of 5.81%.
Gabriela Siller, the director of economic analysis at Banco BASE, commented that these indicators are positive news for the economy.
Mexico’s peso defies regional trends
The Mexican peso experienced a rise against the dollar, showcasing stronger performance than its regional counterparts. The move comes as recent inflation data supports the case for the country’s central bank to maintain record-high interest rates. While many Latin American currencies and stocks are on track for weekly declines due to concerns about the impact of higher global interest rates, Mexico seems to be maintaining a steady stance.
According to Juan Perez, the director of trading at Monex, it’s unlikely that the Central Bank of Mexico will consider any interest rate cuts until the second half of 2024. He emphasized that the current stability suggests that implementing loose monetary policy wouldn’t be logical.
Despite the Federal Reserve’s indication of prolonged higher interest rates, Geoff Yu, senior market strategist at BNY Mellon, pointed out that the US economy’s strength could benefit the country. He further noted that Latin American currencies may continue to be attractive to investors, given the region’s substantial rate buffer to offset any Fed offerings.
In the upcoming week, the central banks of Mexico and Colombia are set to meet. While both are expected to maintain interest rates, there have been discussions among policymakers in Colombia about the appropriateness of a rate cut.
Mexico and Canada overtake China in US import patterns
In the first half of this year, Mexico and Canada surpassed China as the largest import destinations for the United States. The US imported $203 billion worth of goods from China, reflecting a 25% decline from the same period in 2022.
Among Mexico’s trading partners, mainland China, accounting for 17.9% of Mexico’s total imports, is anticipated to be most affected by the proposed tariffs. Other importers of Mexico, including Brazil, Taiwan, South Korea, and India, are also expected to face repercussions as they lack a free-trade agreement with the country.
He Yadong, spokesman for China’s Ministry of Commerce, expressed concerns over the tariffs, emphasizing that they would increase production costs for downstream industries and impact bilateral trade. He urged Mexico to uphold the principles of free trade and to exercise caution in implementing such measures.
However, it’s worth noting that the latest available data on China’s exports to Mexico might not yet reflect the full impact of the new tariffs, as they only took effect in mid-August. According to Chinese customs, Chinese exports to Mexico continued to rise in August, totaling $7.6 billion, marking a 5% growth from July.
Since 2008, Chinese enterprises have invested $20.84 billion in projects based in Mexico, with $8.29 billion invested since 2018. Overall, China’s trade with Mexico grew by 4.79% in the first seven months of the year, making it the only country among China’s top three trading partners in Latin America – including Brazil and Chile – to record trade growth.
Trade experts suggest that despite the decreasing proportion of US imports from China, the ongoing shift in supply chains has resulted in China shipping goods to an intermediate country, like Mexico or Vietnam, before reaching the US.
