The Mexican economy grew 0.2% in the first quarter of 2024 compared to the final three months of last year and 2% on an annual basis, according to preliminary seasonally adjusted data published by the national statistics agency INEGI on Tuesday.

The quarter-over-quarter growth is higher than the 0.1% median forecast of analysts surveyed by Bloomberg, but the annual figure is lower than the expected 2.3%.

Gabriela Siller, director of economic analysis at the Mexican bank Banco Base, acknowledged on the X social media platform that the quarter-over-quarter growth was higher than expected, but added that the 0.2% expansion was “low” considering that 2024 is an election year, when political spending typically stimulates the economy.

In fact, the January-March result represented the lowest Q1 growth rate since the first three months of 2020 when the COVID-19 pandemic began to have an effect on the economy.

“With … [weak growth] and high inflation, Mexico still has the risk of falling into stagflation,” Siller wrote.

The INEGI data shows that the tertiary or services sector grew 0.7% on a quarter-over-quarter basis between January and March, while the primary and secondary sectors contracted by 1.1% and 0.4%, respectively. The primary and secondary sectors have now contracted during two consecutive quarters, something that hadn’t occurred for around four years.

Siller said that the strength of the peso was a factor in the weakness of the secondary sector, which includes manufacturing, as peso appreciation against the US dollar makes Mexican exports more expensive. The peso had a particularly strong March, reaching an exchange rate of just above 16.5 to the greenback late in the month.

On an annual basis, all three sectors grew in the first quarter of 2024. Primary sector GDP increased 1.3%, the secondary sector grew 1.5% and the tertiary sector expanded 2.5%.

Still, the overall 2% annual growth rate was the weakest result for any quarter in more than two years.

INEGI reported earlier this year that Mexico’s GDP increased 3.2% annually in 2023. Government spending on infrastructure projects and investment related to nearshoring helped stimulate the economy.

In a document submitted to the federal Congress in late March, the Finance Ministry forecast that the Mexican economy will grow between 2.5% and 3.5% in 2024.

Earlier this month, the International Monetary Fund revised down its economic growth forecast for Mexico in 2024 to 2.4% from 2.7%, citing “weaker-than-expected” outcomes early in the year.

With reports from El Economista, El Financiero and El País