The Day at a Glance | May 25 2022

The Top

*Growth for Mexico`s economy was revised upwards in the 1Q22 (1% q/q vs 0.9% prev.).

*Raphael Bostic (Atlanta FED) suggests a pause in monetary normalization in September if inflation and the economy slow down.

*Mexico`s exports increased 0.86% monthly in April (16% annual); imports did the same in 5.2% m/m (25.7% annual) and recorded a 1,884 million dollar deficit during the month.

*Protectionism threatens to create greater inflation and scarcity; Fitch Solutions assures that up to 30 countries have limited food exports to ensure local supply.

*The Federal Reserve`s meeting minutes are expected to be made public this afternoon (1:00 pm Mexico City time).

Economic environment

Mexico`s economy grows. According to revised figures, Mexico`s GDP expanded 1% in the 1Q22, compared to the previous quarter. The data confirms an acceleration in Mexico`s economy at the start of 2022, however, this could be short-lived. At an annual rate, growth set at 1.8%, slightly above the 1.6% reported in preliminary figures. The industrial (1.2% q/q) and the services (1.3% q/q) sectors led the expansion, while the primary sector receded (-) 2% during the quarter. At an annual rate, all of the sectors logged growth (primary 2.1%, secondary 3%; tertiary 0.9%) and showed that services continued to lag in their recovery, led by the industrial sector, which has been boosted by strong expansion in the United States. In fact, trade balance figures confirmed that the positive figures in exports extended into the beginning of the 2Q22 after recording 16% annual growth in April. Imports have also continued showing improvement (25.7% annual), although this mostly responds to an increase in oil imports (71.1% annual) due to higher energy prices at a global level. Despite the positive growth figures in the 1Q22, the outlook seems complicated as the US aggressive monetary normalization process slows down growth in the country`s largest trade partner and will bring negative effects to growth in Mexico`s industrial-exporting sector. Additionally, a restrictive monetary policy has been implemented in order to contain inflation, something that will simultaneously limit expansion in the domestic market. In fact, the increasing rates cycle has not come to an end, and Jonathan Heath, Deputy Governor of the Central Bank of Mexico, recently assured Bloomberg that 200-300 base point increases could be necessary in order to take the interest rate up to 9% or even 10%, given the current inflationary environment.