On May 16th, I highlighted the current Mexican president's reform agenda along with an upgrade in Mexican debt -- both of which were positive developments for the economy.
Yet the next day, 1Q GDP was issued, and the news was decidedly bearish:
Gross domestic product in the first three months of the
year rose 0.8 percent from the year-ago period, less than the
1.1 percent median estimate in a Bloomberg survey of 18
economists. GDP grew 0.5 percent from the previous quarter, an
annualized rate of 1.83 percent. The median estimate from seven
analysts surveyed by Bloomberg was for a 0.3 percent gain.
The economy is growing at its slowest pace since GDP
contracted 6.2 percent in 2009 in the aftermath of Lehman
Brothers Holdings Inc.’s collapse. Today’s report showing
industrial output is contracting increases the probability
policy makers will cut rates as soon as July, said Gabriel Casillas, chief economist and head of research at Grupo
Financiero Banorte SAB.
“It’s a very low growth figure and shows the economy is
decelerating,” Casillas, who is based in Mexico City, said in a
telephone interview. Mexico was hurt by “the slowdown in
manufacturing of the U.S. that started in the fourth quarter of
And retail sales have contracted on a year over year basis for the second month in a row:
Mexico’s retail sales (MXWRTRYO) surprised
analysts in March by contracting for a second straight month for
the first time since 2009, bolstering bets policy makers will
cut interest rates again this year.
Sales fell 2.4 percent from a year earlier, the national
statistics agency said today, more than forecast by any of the
19 analysts surveyed by Bloomberg. The median estimate was for
an increase of 0.3 percent. Retail sales climbed 0.25 percent
from the previous month.
Also consider that recent fund flow data indicates that foreign investors are decreasing their inflows.
Other economic data in recent days have added to the worries. Foreign
direct investment last year plunged to $12.7 billion, from an average of
around $23 billion during the past decade, according to CEPAL, a
UN-linked research organisation. It said the figure was affected by
one-offs, such as a decision by Spain’s Banco Santander to list its
Mexican subsidiary, raising $4 billion. That counted as an outflow of
foreign investment. Some economists pointed to concerns that high levels
of drug-related crime may also be taking a toll on investment, notably
in tourism. Last year Mexico slipped out of the top ten of global
As a result the Mexican market has sold off over the last week:
Technical support for the ETF was around the 70 level. Prices moved through that level last week in a convincing manner on large volume spikes. Support exists at various Fib levels; currently, the 61.8% Fib level from the June-April rally along with the middle Fib fan are supporting prices.