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Mexico Economic Update

Mexico’s economy grows for third straight quarter; outlook improves

Jesus Cañas and Juliette Coia

August 22, 2022

August 2022 economic report
GDP, real
April–June '22
Employment, formal
July '22
July '22
July '22
arrow_drop_up4.1% q/q arrow_drop_up180,000 jobs m/m arrow_drop_up8.1% y/y arrow_drop_up20.5

Mexico’s real GDP grew an annualized 4.1 percent in second quarter 2022, identical to the first quarter’s revised 4.1 percent growth and above analysts’ expectations of 3.2 percent. The service sector was the most dynamic as tourism continued to fuel the recovery, according to analysts. However, deceleration in global economic growth, particularly in the U.S., ongoing supply-chain bottlenecks, higher inflation and tighter monetary policy remain headwinds for the Mexican economy. Despite these challenges, the consensus forecast for 2022 GDP growth (fourth quarter/fourth quarter), compiled by Banco de México, was up in July (Table 1). The latest data available show industrial production, exports, retail sales, remittances and employment grew. In July, the peso lost value against the dollar, and inflation increased further.

Table 1: Consensus forecasts for 2022 mexico growth, inflation and exchange rate
  July June
Real GDP growth (Q4/Q4)



Real GDP (average year/year)



CPI (Dec. '22/Dec. '21)



Exchange rate—pesos/dollar (end of year)



NOTE: CPI refers to consumer price index. The survey period was July 21–28.
SOURCES: Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Julio de 2022 (communiqué on economic expectations, Banco de México, July 2022).

Output grows in second quarter 2022

According to preliminary estimates, Mexico’s second-quarter GDP grew an annualized 4.1 percent (Chart 1). The service-providing sector (wholesale and retail trade, transportation and business services) grew 4.0 percent, while output in both the goods-producing sector (manufacturing, construction, utilities and mining) and agriculture increased 3.6 percent.

Chart 1

Industrial production ticks up

The three-month moving average of Mexico’s industrial production (IP) index—which includes manufacturing, construction, oil and gas extraction, and utilities—increased in May from April (Chart 2). On a month-over-month and unsmoothed basis, IP was up 0.1 percent in May while manufacturing IP increased 0.2 percent. North of the border, U.S. IP fell 0.2 percent in June after rising 0.1 percent in May. The correlation between IP in Mexico and the U.S. has increased considerably with the rise of intra-industry trade between the two countries since the early 1990s. Mexico’s manufacturing sector could experience some slowdown in the second quarter, particularly if U.S. consumer demand decelerates as a result of rising prices and higher interest rates.

Chart 2

Exports grow in June

The three-month moving average of total Mexico exports increased 0.3 percent in June as oil exports grew 2.5 percent, and the much-larger manufacturing exports category grew 0.2 percent (Chart 3). On a month-over-month and unsmoothed basis, total exports were flat in June, with oil exports growing 4.2 percent and manufacturing exports only ticking up 0.2 percent. The pickup in oil prices has contributed to the recent growth in oil exports given that Mexico’s oil production has been flat since mid-2021. Mexico’s total real monthly exports in June were 14.5 percent above prepandemic levels (February 2020) and 10.4 percent higher than year-ago levels (June 2021).

Chart 3

Retail sales continue to climb

The index of real Mexico retail sales increased 0.5 percent month over month based on a three-month moving average through May (Chart 4). On a month-over-month and unsmoothed basis, retail sales also grew 0.5 percent in May. Retail sales reached prepandemic levels (February 2020) in October 2021.

Chart 4

Payroll gains dip below trend

Formal sector employment—jobs with government benefits and pensions—grew an annualized 1.1 percent (18,000 jobs) in July, the slowest monthly growth since October 2021 (Chart 5). Year-over-year employment growth was 3.9 percent in July. Total employment, representing 56.1 million workers and including informal sector jobs, was up 5.9 percent year over year in first quarter 2022. The unemployment rate in June was 3.3 percent, down from 3.4 percent in May. Employment in Mexico recovered to prepandemic levels in September 2021, while GDP just reached prepandemic levels in second quarter 2022.

Chart 5

Peso weakens in July

The Mexican currency averaged 20.5 pesos per dollar in July, down from June (Chart 6). The peso is still down 5.9 percent from its prepandemic level in February 2020. The peso has been under pressure due to high inflation and increased uncertainty regarding domestic and global growth.

Chart 6

Remittances to Mexico rise

The three-month moving average of real remittances to Mexico increased 1.5 percent in June after rising 0.1 percent in May (Chart 7). On a month-over-month and unsmoothed basis, remittances decreased 0.1 percent in June. Most likely, remittance flows to Mexico slowed due to high inflation in the U.S. and elsewhere, which erodes disposable income, including funds for remittances. However, remittances to Mexico show recent signs of improving as strong growth in the U.S. labor market continues.

Chart 7

Foreign-owned government debt share continues downward trend

The three-month moving average of foreign‐owned Mexican public government securities fell to 16.8 percent in July (Chart 8). The decline is due to a reduction in the ownership of long-term securities by foreigners. The extent of nonresident holdings of government debt is an indicator of Mexico’s exposure to international investors and a sign of confidence in the Mexican economy. It’s noteworthy that the measure has been on a downward trend since peaking in early 2015. It is also relevant to note that long-term government securities are most of the foreign‐owned Mexican public debt, representing 92 percent of the total.

Chart 8

Inflation increases further

Mexico’s consumer price index (CPI) was up 8.1 percent in July over the prior 12 months, rising at a slightly faster pace than in June (Chart 9). CPI core inflation (excluding food and energy) rose 7.6 percent in July over the previous 12 months. In June, Mexico’s central bank increased the benchmark interest rate to 7.75 percent, hiking it by 75 basis points—the largest increase since 2008. In the public announcement accompanying the interest rate decision, the central bank cited several factors for the increase, including persistent global and domestic inflationary pressures associated with the pandemic; higher energy, agricultural and livestock product prices; the intensification of geopolitical turmoil; and strict lockdown measures imposed by China. In addition, the central bank said it intends to continue raising the reference rate if inflationary pressures persist.

Chart 9

About the Authors

Jesus Cañas

Cañas is a senior business economist in the Research Department at the Federal Reserve Bank of Dallas.

Ana Pranger

Pranger is a research analyst in the Research Department at the Federal Reserve Bank of Dallas

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.