Mexico: Strong consumer demand not likely to last for long - Wells Fargo

Analysts from Wells Fargo, pointed out that consumer demand in Mexico  remained strong during 2016, unperturbed by the recent turmoil; but they warned that won’t last for long. 

Key Quotes: 

“The Mexican economy slowed a bit in the fourth quarter as it grew 0.6 percent, compared to 1.0 percent in the third quarter. The economy grew 2.3 percent for the whole of 2016 compared to 2.6 percent in 2015.”

“The driving forces for growth in the final quarter of the year were the industries of the primary sector, i.e., the agriculture and cattle industries. The primary sector grew at a rate of 0.4 percent on a quarter-on-quarter basis, seasonally adjusted.”

“It is clear that consumer demand has remained strong during 2016. However, with such a sharp increase in interest rates, the large devaluation of the Mexican peso and the recent increase in inflation, it is going to be very difficult for personal consumption expenditures (PCE) to remain as strong as it was during 2016.”

“We have seen many signs that the Mexican economy has continued to weaken and we will probably continue to see this trend in the first half of this year with gross fixed investment leading the charge.”

“This means that if PCE starts to slow down, due to higher inflation and interest rates, along with the depreciation in the Mexican peso, the probability of a mild recession in 2017, which is our call, will increase. For now, consumers seem o be unperturbed by the recent turmoil affecting the Mexican economy. This will more than likely not last for long.”