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The industrial sector declined by 0.6%, the first negative growth in three years. The industrial sector declined by 0.6%, the first negative growth in three years.

GDP growth in 2017 was lowest in 4 years

At 2% it was only slightly below market forecasts

Mexico’s economy continued to grow in 2017 but at its slowest pace in four years, according to revised data from the National Statistics Institute (Inegi).

Gross domestic product (GDP) increased just 2% last year, burdened by lackluster activity in the industrial sector and a slight downturn in the service sector.

The figure was just below market forecasts, which anticipated 2.1% GDP growth.

Manufacturing output was held back by the decreased activity in the service sector. The latter contributes to almost 65% of Mexico’s total GDP but growth of the sector, at 3%, was the lowest in three years.

One exception was international tourism, which was worth US $21.3 billion to the economy, an increase of 8.6% compared to the income it generated in 2016.

The industrial sector of the economy contributes to around 30% of Mexico’s GDP but it declined by 0.6% last year compared to 2016. It is the first time in three years that it recorded negative growth and its biggest contraction in eight years.

Agriculture — which contributes to just over 4% of GDP — grew by 3.3% last year, the slowest rate of growth since 2015.

A senior economist at the bank Banorte told the newspaper El Economista that the economy will also face significant challenges in 2018, above all in the first half of the year.

Alejandro Cervantes said that private consumption, the economy’s primary engine, could slow slightly in the face of higher inflation although he added that it could be offset by increased activity in the labor market.

In the industrial sector, Cervantes said that uncertainty surrounding the North American Free Trade Agreement (NAFTA) could lead to greater manufacturing activity as businesses seek to export their products before any greater restrictions possibly come into force.

The analyst also said that the construction sector could see benefits from increased government spending as election campaigns ramp up.

However, uncertainty surrounding the outcomes of both domestic elections and Mexico’s trilateral trade agreement with the United States and Canada could apply the brakes to private capital flows, Cervantes said.

Taking all factors into consideration, GDP growth is expected to be sluggish in the first six months of 2018.

However, Cervantes explained that when the uncertainty dissipates and the country is “in an environment of stability and without external imbalances, the Mexican economy will be capable of generating greater economic growth, accompanied by decreasing inflation.”

Source: El Economista (sp)

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