Mexico GDP Contracts 3.2% saar in Q1 as Productivity Falls 8%
Mexico's GDP contracted 3.2% saar in Q1, delivering just 0.1% year-on-year growth as all three sectors weakened and non-agricultural employment turned negative. Bank of America cites an 8% drop in total factor productivity since 2016, anticipates a 5% GDP fiscal deficit for infrastructure and Banxico rate cuts later.
1. Q1 GDP Performance
Mexico’s real GDP fell 3.2% on a quarter-over-quarter seasonally adjusted annualized rate in Q1, marking the sharpest contraction in years. Unadjusted year-on-year growth was only 0.1%, with output declines recorded across manufacturing, services and agriculture.
2. Structural Headwinds
Underlying the slowdown is a multi-year productivity slump, with total factor productivity down 8% since 2016, and a non-agricultural employment index shifting into outright contraction. These trends point to a persistent structural growth drift rather than a temporary cyclical slowdown.
3. Policy Outlook
To counteract slack, authorities plan a broader fiscal deficit near 5% of GDP this year to fund infrastructure projects, while Banxico’s policy rate remains at 6.50% but is expected to be cut later. However, expansionary policy without reforms may compress fiscal buffers and sustain sticky inflation.