March industrial production growth of Mexico (1.7% yoy and unchanged mom on a seasonally adjusted basis) came in as expected and could mean overall supply-side growth of 2.2% yoy for the month. Assuming the March growth forecast holds, the demand-side economy likely contracted -0.1% qoq (+2.2% yoy) in Q1 versus the earlier estimate of nearly no expansion’ says Societe Generale.The Q1 numbers in the table above will probably cause a small reduction in our full-year growth forecast of 2.8%. However, a lot will depend on the demand-side composition of Q1 GDP. Exports and investment remain crucial to near-term growth acceleration. However, while some bounce back in US activities is expected in Q2 after near flat growth in Q1 due to weather-related disturbances, recent retail sales data has probably taken a big chunk off the estimates for consumption and growth, added Societe Generale. Economists see little reason to worry at this stage for as long as the labour market remains supportive. However, in light of the monthly releases, there are considerable downside risks to Q2 and full-year US growth prospects, which would also feed into Mexican export and growth prospects.Over the past three quarters (excluding Q1), the economy has been growing near its trend, which seems to have moved to between 2.4% and 2.7%. On the demand side, while export led investment demand has supported growth, low consumption growth has prevented a sharper acceleration in overall activities. Moreover, given the possibility of some trade-off between consumption and exports, strong growth acceleration could be that much more difficult in the medium term despite the implementation of several reforms last year.
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