Last week the INEGI published the GDP for the first quarter of this year (in its ‘preliminary estimate’). The economy recorded quarterly growth of 0.2 percent. GDP was driven by the services sector, which grew 0.7 percent. In fact, both agricultural and industrial production subtracted momentum from GDP, having observed falls of 1.1 and 0.4 percent, respectively. At an annual rate, GDP grew 1.6 percent.
We will not have the fine detail by subsector until the publication of the revised GDP (or ‘traditional estimate’), which INEGI will make public on May 23. However, on the one hand we know that The boy has been affecting agricultural production (“The economic dangers of El Niño and La Niña”, August 22, 2023). On the other hand, in the highest frequency indicators on the supply side – such as the monthly reports of industrial and automotive production, among others – it is seen that the activities that subtracted dynamism from the economy were construction and mining.
This means that the effects of The boy They have been less transitory than I thought, generating even higher volatility than what you normally see. In the detail of the IGAE – a monthly approximation of GDP –, agricultural production fell 12.9 percent in January and in February it increased 16.5 percent. Regarding manufacturing, let us remember that last year practically the only subsector that grew was automotive production (8.2 percent), while the other manufacturing branches observed weakness.
Even so, it is worth noting that vehicle production suffered a very significant drop in November and December (-43 percent). Although several companies in this sector are changing their models and stopping production in these months, on this occasion almost all of them did it in unison, something very unusual. However, this behavior could be explained by last year’s strikes in this sector in the United States, as well as the transformation we are observing towards the production of electric vehicles. In the end, a positive aspect is that this is temporary and that, although it has taken longer than one server anticipated to recover, it has been growing in the first three months of the year (+40 percent between January and March).
Just as I commented a few weeks ago in this same space, I continue to think that, although the weakness of the fourth quarter of last year extended to the first quarter of this year, this is just a bump in the road and not a trend (“Economic slowdown: trend or bump in the road?“, April 9th). Going forward, in my opinion, there are three forces that will raise the growth rate of our country’s economy in the remainder of the year: (1) Greater dynamism in the two sectors that have suffered temporary shocks: (a) agriculture and ( b) automotive; (2) significant rebound in non-residential construction due to acceleration of public spending to finish President López Obrador’s flagship works before the end of his six-year term, as well as the construction of industrial parks, which has been one of the ways in which It has been observed that the nearshoring has boosted the Mexican economy (“‘Nearshoring‘in Mexico, a reality”, November 29, 2022); and (3) growth of the United States economy, with a boost more from the manufacturing side – in line with the rebound in manufacturing globally – and less from the channels of remittances and tourism, where it is beginning to appreciate the impact of restrictive monetary policy in the US, particularly on remittances, as well as the strength of the peso vis-à-vis the dollar, making tourism in Mexico more expensive. In fact, in the monthly reports of industrial production in Mexico we have already seen a rebound in non-automotive manufacturing in January and February and in the monthly reports of remittances we have already observed a lack of growth, although at a very high level.
In this way, with the quarterly growth of 0.2 percent or annual growth of 1.6 percent in 1Q24, in my opinion, the numbers no longer provide the numbers to achieve a GDP growth of 3.0 percent for all of 2024, but one of 2.6 percent. This implies significant growth in the second quarter, although we see a certain slowdown in the second half of the year, especially due to the change of offices in the different government agencies, which historically reduces the dynamism of our economy.
