The Day at a Glance | Jun 24 2022

The Top

*Mexico`s economy grew at a 2% annual rate during April (1.1% monthly), according to the IGAE.

*US to escalate claim that Mexico`s state-favoring energy policies violate the USMCA.

*Markets reduce expectations of interest rate increases on behalf of the FED in light of greater chances of a recession. 

*Michelle Bowman, member of the FED, in favor of a 75bp increase in July.

Economic environment

Mexico`s economy grew more than expected during April. According to the Global Indicator of Economic Activity (IGAE, for its initials in Spanish), made public by the INEGI, Mexico`s economy grew 1.1% during April with respect to March; figure above the 0.8% estimated by analysts. At an annual rate, growth set at 2%. Services led growth during the first month of the second quarter, with a 1.3% monthly rate of expansion (1.1% annual), while industrial services recorded a 0.6% monthly increase (2.9% annual), and primary activities receded (-) 1.3% monthly (+5.3% annual). The data confirms Mexico`s firm rate of recovery in the first half of 2022, although leading indicators suggest that it has slowed down since April, and that local and global risks suggest that growth could be more moderate in the second semester of the year. 

The US will escalate its complaints against Mexico. According to recent reports, the United States will scale its claim that Mexico`s state-favoring policies violate the regional free trade agreement. The US Trade Representative`s Office has been working on a request for formal consultations under the US-Mexico-Canada Agreement, according to sources close to the US government. The timing for the request is still being determined, however, a formal petition of this type would give Mexico 30 days to agree to schedule consultations – and if after 75 days no agreement is reached, the US could request that a formal panel hear arguments from the two countries. The process will focus on correcting the Mexican government`s actions with respect to its energy sector`s policies, but the USMCA could possibly allow the US to impose tariffs on Mexico as a final measure to resolve the conflict. This occurs as American businesses pressure the US government to modify the Mexican government`s practices in the energy sector. It`s estimated that 10 billion dollars of investment are at risk due to recent changes in Mexico`s electricity sector. In the following weeks, Mexican President Andrés Manuel Lopez Obrador will visit his US counterpart, Joe Biden; the measure could increase pressures prior to the conversations.