Mexico: Resilient economy amid persistent US policy uncertainty

Country Report

Resilience despite uncertainty

In 2016, Mexico’s real GDP expanded by a moderate +2.3% after +2.6% in 2015. Recent performance figures have calmed nerves frayed by the election of Donald Trump. The economy accelerated to +2.6% y/y in Q1 (+0.7% q/q). 

With +3.8% y/y growth, the services sector performed well. This was a remarkable figure, taking into account the surge in consumer prices due to the increase in gasoline prices and the delayed effect of the MXN depreciation in H2 2016. Along with agriculture (+6.3% y/y), services compensate for the fall in industrial output (-1.1% y/y) recorded for the fifth consecutive quarter. 

In spite of internal and external policy uncertainties, Euler Hermes expects the Mexican economy to grow by +2.3% in 2017 and 2018. Although private consumption has exhibited dynamism in Q1 2017, fixed investment’s sluggishness intensified, limiting a further acceleration of activity.

Mexico enjoys a relative sound financial position. Household debt stands at a reasonable level (around 15% of GDP). Corporate debt is lower than in other emerging economies at 35% of GDP. The banking sector has proven to be resilient to external shocks as shown by stress tests conducted by the IMF in late 2016.