By Alejandro J. Saldaña Brito, Chief Economist, GFB×+
The most recent figures for industrial activity in the country seem not very encouraging, in addition to the fact that the outlook for the coming months seems to be darkening. Certain, the production of goods has lost some of the momentum associated with the economic reopening and, in addition, it is expected that it will suffer the cooling in consumption at a local and global level. On the other hand, it must not be forgotten that, just as there are challenges, there are also very important opportunities, especially with a view to the medium term.
According to what was published by the National Institute of Statistics and Geography (INEGI), industrial activity practically stagnated in November, by registering a real monthly variation that was barely 0.0016%. If we annualize the average monthly growth of the last three months, it has gone from being consistently above 2.0% in the first seven months of last year (maximum 8.2%, minimum 2.2%), to staying below 1.0% between August and November (maximum 0.9%, minimum 0.0%). This is clearly evidence of a slowdown in activity.
The economic reopening, which in turn produced a recovery in internal and external demand, and the easing of obstructions in supply chains, allowed the industry to recover at a significant pace -although not linear- from the second half of 2020. Between May 2020 – the weakest point during the pandemic crisis – and last November, activity grew 39.5%, but is still below (-0.6%) what was observed before the shock associated with the pandemic. Naturally, the momentum explained by the economic reopening has been dissipating, so the slowdown in industrial production should not surprise us.
Furthermore, and given that the restrictions on the supply will be less and less visible, attention must be focused on the less dynamism of the demand. Going forward, production bottlenecks should continue to subside, especially given the announcement of the end of the “zero tolerance to covid” policy in China, although it is true that we cannot rule out new distortions in these and in the price of raw materials until the armed conflict in Ukraine is resolved. Having said this, what should really concern us is the cooling of internal and external demanddue to the erosion of purchasing power, the increase in interest rates and the weakening of confidence.
The manufacturing orders index seems to confirm what was mentioned above. This index is one of the economic indicators that are considered “leading”, as it is very timely and gives us a glimpse of the perspective for the coming months. In December, the index remained above 50 points, but below what was seen in October and November, which implies that manufacturing activity, although it will continue to expand, will do so at a slower pace. Within the indicator, the component of input delivery by suppliers was below 50 points, which is read as a greater opportunity in the supply; the order item remained above 50 points, but marked its lowest level in 11 months, anticipating a clear slowdown in demand.
Despite all the above, Mexico is facing what may be a historic opportunity for your industry. After the pandemic, efforts have been made to make the supply chains of the North American industry more resilient, which leads to the expectation that more of its suppliers, which are currently located in Asia and other distant regions, will seek to relocate to Mexico, the United States and Canada.
This phenomenon may be exacerbated by the entry into force of the USMCA and the Sino-American disputes. Let us remember that the new North American trade agreement, the T-MEC, requires a higher content of inputs of domestic origin in some industries -such as the automotive industry- than its predecessor, NAFTA, so that a product can be traded free of tariffs. between the three signatory countries. In addition to taking advantage of the benefits of the T-MEC, some companies would prefer to relocate to North America to avoid being affected, through tariffs or other barriers to tradeof political and economic distancing in the United States and China.
Editor’s Note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
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