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Mexico Economic Update

Mexico’s economy improves in the first quarter of 2024

Jesus Cañas and Diego Morales-Burnett
April 2024 economic report
GDP, real
Q1 '24
Employment, formal
April '24
April '24
April '24
1.1% q/q 123,593 jobs m/m 4.8% y/y 16.8

Mexico’s economy grew 1.1 percent in the first quarter, driven by the services sector, according to the national statistics bureau. The first-quarter GDP growth implies a moderate acceleration compared to the fourth quarter of 2023, when output was flat. The consensus forecast for 2024 GDP growth (fourth quarter/fourth quarter) compiled by Banco de México is still around 2.2 percent (Table 1).

Table 1
Consensus forecasts for 2024 Mexico growth, inflation and exchange rate
  March April
Real GDP growth in Q4, year over year 2.1 2.2
Real GDP growth in 2024 2.4 2.2
CPI December 2024, year over year 4.1 4.2
Peso/dollar exchange rate at end of year 18.1 17.9
NOTE: CPI refers to the consumer price index. The survey period was April 19–29.
SOURCE: Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Abril de 2024 (communiqué on economic expectations, Banco de México, April 2024).

Recent data are mixed. While industrial production, exports and employment rose, retail sales ticked down. Inflation picked up, and the peso held steady against the dollar.

Output grows in first quarter

Mexico’s first-quarter GDP grew an annualized 1.1 percent (Chart 1). On a nonannualized basis, the goods-producing sectors (manufacturing, construction, utilities and mining) contracted 0.5 percent after falling 0.3 percent the previous quarter. Activity in the services-providing sectors (wholesale and retail trade, transportation and business services) grew 0.6 percent, faster than the previous quarter’s 0.3 percent increase. Agricultural output expanded 1.7 percent.

Chart 1

Industrial production increases

The three-month moving average of Mexico’s industrial production (IP) index, which includes manufacturing, construction, oil and gas extraction, and utilities, edged up 0.1 percent in March after declining the previous four months (Chart 2). Manufacturing IP grew 0.5 percent. North of the border, the three-month moving average of U.S. IP was flat in March. With the rise of intra-industry trade between the U.S. and Mexico since the early 1990s, the correlation between Mexican and U.S. IP has increased considerably. Slowing U.S. manufacturing activity appears to be impacting Mexico’s manufacturing sector.

Chart 2

Exports edge up in April

The three-month moving average of total Mexico exports ticked up 0.1 percent in April (Chart 3). While the much larger manufacturing sector increased 0.6 percent, oil exports fell 9.3 percent in April. Total exports fell 1.1 percent during the first four months of 2024 compared to the same period a year ago, with oil exports down 8.7 percent and manufacturing down 0.7 percent.

Chart 3

Retail sales fall

The three-month moving average of real retail sales fell 0.4 percent in February, the latest data available (Chart 4). Year over year, however, the smoothed retail sales index was flat. Declines in remittance flows may be contributing to the slowing level of Mexican retail spending along with elevated inflation. Consumption was one of the key engines of economic growth in Mexico last year.

Chart 4

Employment rebounds in April

Formal sector employment, meaning jobs with government benefits and pensions, grew an annualized 6.9 percent (123,000 jobs) in April, the largest monthly increase since May 2023 (Chart 5). At year-end 2023, total employment, representing 59.4 million workers and including informal sector jobs, was up 1.8 percent year over year. The unemployment rate held steady at 2.7 percent in March.

Chart 5

Peso holds steady

The Mexican currency averaged 16.8 pesos per U.S. dollar in April, the same average as it was in March (Chart 6). The peso has been trending up since late 2023. Mexico’s solid macroeconomic framework, fiscal discipline and prospects for nearshoring investment likely have contributed to peso appreciation and stability.

Chart 6

Remittances continue falling

The three-month moving average of real remittances to Mexico fell 2.3 percent in March after growing 0.8 percent in February (Chart 7). The U.S. economy is expected to experience weaker employment growth this year, which may further impact the capacity of Mexicans working abroad to send money back home.

Chart 7

Domestic investment consolidates in 2023

Private investment has been on an upward trend since the end of the pandemic, reaching prepandemic levels in the third quarter of 2021. Private investment held steady in the fourth quarter of 2023 at 22.6 percent of GDP, above the 18.6 percent figure in the first quarter of 2020 (Chart 8). The elevated level of private investment is due to investors catching up after many projects were suspended during the pandemic and preparing for nearshoring projects, according to multiple sources. A strong peso also makes imports of machinery and equipment less expensive, and companies are taking this opportunity to replace dated equipment. Meanwhile, public investment rose to 2.9 percent of GDP in the fourth quarter, buoyed by major public projects underway such as the Maya train and the Dos Bocas refinery.

Chart 8

Inflation picks up in April

Mexico’s consumer price index (CPI) increased 4.8 percent in April over the prior 12 months, stronger than the 4.3 percent reading in March (Chart 9). CPI core inflation, which excludes fruits, vegetables, meat, eggs and energy, continued slowing to 4.4 percent. CPI core inflation has slowed since early 2023; however, services inflation persists, keeping overall inflation above the central bank’s 3 percent target rate. In May, Mexico’s central bank voted unanimously to keep the benchmark interest rate at 11 percent. This decision followed a 25-basis-point decrease in March.

Chart 9

About the authors

Jesus Cañas

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

Diego Morales-Burnett

Diego Morales-Burnett 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.