The Day at a Glance | May 26 2023

The Top

*The Global Economic Activity Indicator (IGAE for its initials in Spanish) closed the 1Q23 with negative monthly figures. 

*The most recent figures for the US consumer spending deflator logged acceleration in April. 

*The final reading for Mexico´s GDP in the first quarter of 2023 set at 3.7% y/y. 

*Mexico´s current account recorded a deficit worth $14.282 billion in the 1Q23. 

*Less than a week before the deadline, the White House and Republican lawmakers are approaching an agreement to increase the debt ceiling for two years, at the expense of limiting public spending in all areas except for the military and veterans. 

Economic environment

Economic activity weakened in Mexico at the end of the 1Q23. The IGAE recorded a monthly -0.33% figure in March – a setback that was greater than what the consensus expected (-0.13%e.), and was preceded by already weak growth (0.07% m/m in February). All three sectors logged negative figures, with secondary activities recording a -0.89% m/m figure due to declines in mining (-3.25% m/m) and manufacturing (-1.07% m/m). Additionally, the tertiary sector saw its second monthly contraction as it recorded a -0.1% m/m figure; six out of the nine components set in negative territory, while primary activities declined by -1.63% m/m. With this, annual readings logged a significant slowdown, with the overall index recording a 2.71% year on year figure, its lowest reading since June of last year. Furthermore, GDP for the first quarter was revised downwards slightly from 3.9% y/y to 2.7%. While activity readings in the first quarter continue to show healthy expansion, the trend seen in the IGAE showed signs of fatigue in March. This, coupled with the idea that interest rates will remain in restrictive territory for a considerable period – and a potential economic recession in the US – clouds the outlook for the rest of 2023. 

The FED´s preferred indicator for inflation accelerated in April. The consumer spending deflator logged 0.4% monthly and 4.4% year on year readings, surpassing consensus estimates and previous figures (0.1% monthly and 4.2% year on year in March). Even more relevant, however, is the fact that the underlying indicator also increased by 0.4% month to month and 4.7% year on year, also exceeding estimates. These readings could exert some pressure on FED officials to lean towards extending the tightening cycle, given the division that exists within the Open Market Committee, as shown by the central bank´s most recent meeting minutes.