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News | Question of the Week, WC 5th April
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Question of the Week, WC 5th April

Q: Mexico's economy remained weak in Q1, can it rebound from Q2? What are leading indicators telling us?

A: The relative strength of the investor and consumer confidence reports for March, released this week, signal a better outlook for the Mexican economy. The economy was under pressure in Q4 and most of Q1, but the forward-looking elements of these surveys suggest that activity will start recovering in late Q2, as the temporary drags of Q1 fade. The IMEF PMI manufacturing index for March fell to 50.3 in seasonally adjusted terms, from 53.9 in February, which was the highest level in a year. The details of the report were mixed, with new orders plunging to 51.1 from 57.1 and output dropping to 47.8 from 51.8. The employment sub-index fell below the 50 threshold, following a tentative recovery in February, but we expect a rebound.

Industrial conditions seem to be improving at the margin, particularly in manufacturing, but the IMEF correction in March is a reminder that the recovery is likely to be subpar. The services PMI, meanwhile, rose to 51.2 in March, the highest reading since September; the details were fairly strong too. New orders, production and the employment are now all above 50. One month does not make a trend, but the bounceback is good news as the services sector accounts for slightly more than 60% of total GDP.

All in all, the message in the PMIs was broadly positive, confirming our expectation that services are still shouldering the recovery. But the sector likely will pass the baton to manufacturing, once the first-quarter noise—mostly related to external woes, and uncertainty about AMLO's policies—fades over the second half of the year.

Andres Abadia, Chief Latam Economist

Pantheon Macroeconomics

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Posted: 5th Apr 2019

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