Economics: February indicators reveal further slowing of economic activity on a mix of domestic factors and external threats

MEXICO - Report 03 Mar 2025 by Mauricio González and Francisco González

This week’s review of the news of the past month provides plenty of evidence of a further slowing of economic growth. Industrial activity contracted in December, and GDP growth sputtered to only half a percentage point in the fourth quarter, with services the only sector with relative growth that continued to offset negative numbers from the secondary sector. We expect manufacturing to remain weak and construction to maintain negative balances in the first half of 2025, while services could experience a more pronounced deceleration on softening consumer demand. All of this leads us to reiterate our estimate of 0.3% GDP growth for 2025, while considering a possible downward revision soon.

In this past week’s key economic news, we detail the 26bp rise in headline inflation reported for the first half of February in response to sticky core prices and higher annual services inflation, developments that further complicate monetary policy and could be aggravated should Trump's tariff threats materialize. Also in the past week's economic news, the current account ended the year on its typical fourth quarter high, aided by continuing growth in remittance inflows that in future quarters could suffer from Trump’s immigrant policy. Mexico’s trade deficit grew in January as its petroleum gap was three times greater than a year earlier, with oil exports falling sharply. Looking ahead, trade performance can expect at least a short term hit from the tariffs Washington is threatening but that were paused during February. However, the impact would be mitigated by an exchange rate that has accumulated a depreciation of close to 20% with respect to the first half of 2024, with specific effects likely depending on the exported product in question and the extent to which it includes imported inputs. Lastly, the jobless rate remained steady in January even as formal sector job growth slowed considerably, with employers cutting back on hiring, leaving many persons seeking work in the informal sector.

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