July Data Reveals Mexico’s Low-Growth Trap
According to data released by Mexico’s National Institute of Statistics and Geography (Inegi) on September 17, Mexico’s economy remains trapped in low-growth patterns. In July, manufacturing production dropped 2.7% compared to June and decreased by 1.1% from July 2024. In pesos, the manufacturing sector saw a loss of approximately 45,000 million in a single month and over 70,000 million annually.
Impact on Employment
The decline in production has affected the labor market. The number of people employed in the manufacturing industry fell by 0.2% monthly, equating to 19,000 lost jobs in July and an annual decrease of 2.3% (around 221,000 fewer jobs compared to July 2024). Hours worked also decreased by 0.2% in the month and 2.2% year-to-date, resulting in fewer shifts, reduced overtime, and technical pauses.
Wage Increases Offer Little Relief
The only positive aspect was a 0.7% monthly and 6% annual increase in the average real wages of the manufacturing sector. With an average salary of 12,600 pesos, this translates to a mere 90 additional pesos per worker. The 9.6 million employees in the sector received 865 million pesos more in wages, but this minor increase is insignificant when faced with losses of tens of thousands of millions in production and hundreds of thousands of eliminated jobs.
Declining Private Consumption
Private consumption, which accounts for nearly seven-tenths of Mexico’s GDP, is also contracting. The Indicator of Private Consumption estimates a 0.7% annual decline for July and zero growth for August. This implies 9,300 million pesos less spending on goods and services in a single month, leading to the loss of between 10,000 and 15,000 indirect jobs in retail and services.
Underlying Factors and Future Risks
The combination of reduced production, employment, and consumption in July paints a clear picture: despite optimistic forecasts, Mexico’s economy is stagnating. Factors contributing to this situation include uncertainty over Trump’s tariffs, the fragility of the T-MEC agreement, limited fiscal space for the government, insufficient domestic productive investment, reliance on remittances, and nearshoring concentrated in a few states and sectors. Additionally, the limited effectiveness of the so-called “Plan Mexico” has been useful in preventing occasional downturns but insufficient as a growth driver.
Further complicating matters, the Federal Reserve’s decision on September 17 to lower interest rates by 0.25 percentage points introduces risks for Mexico. A potentially weaker dollar could put pressure on the peso, a narrower interest rate differential could complicate matters for Banxico, and reduced demand in the US might decrease Mexico’s exports and remittances.
Anticipating a Challenging Future
These factors suggest that both consumption and employment will likely continue to deteriorate in the coming months, pointing towards a low-growth scenario and an increasingly fragile domestic market. The upcoming months will be challenging, requiring caution and resilience.
Key Questions and Answers
- Q: What does the July data reveal about Mexico’s economy?
A: The data shows that Mexico’s economy remains trapped in low-growth patterns, with manufacturing production dropping 2.7% from June and decreasing by 1.1% compared to July 2024.
- Q: How has the labor market been affected by declining production?
A: The number of people employed in the manufacturing industry has fallen by 0.2% monthly, resulting in 19,000 lost jobs in July and an annual decrease of 2.3% (around 221,000 fewer jobs compared to July 2024).
- Q: What is the impact of rising average real wages in the manufacturing sector?
A: Although average real wages increased by 0.7% monthly and 6% annually, the additional 90 pesos per worker is insignificant given the losses from reduced production and job eliminations.
- Q: How is private consumption affecting Mexico’s economy?
A: Private consumption, which accounts for nearly seven-tenths of Mexico’s GDP, is contracting. This implies 9,300 million pesos less spending on goods and services in a single month, leading to the loss of between 10,000 and 15,000 indirect jobs in retail and services.
- Q: What factors are contributing to Mexico’s economic stagnation?
A: Factors include uncertainty over Trump’s tariffs, fragility of the T-MEC agreement, limited fiscal space for the government, insufficient domestic productive investment, reliance on remittances, and nearshoring concentrated in a few states and sectors. The limited effectiveness of the “Plan Mexico” also plays a role.
- Q: What risks does the Federal Reserve’s interest rate cut pose for Mexico?
A: The risks include a potentially weaker dollar putting pressure on the peso, a narrower interest rate differential complicating matters for Banxico, and reduced demand in the US decreasing Mexico’s exports and remittances.
