Mexican Industrial Sector Drops 0.3% in August

Mexico's industrial sector experienced a downturn in August, marking a 0.3% annual decline and ending a streak of 41 months of growth. The slowdown, primarily driven by contractions in construction and mining, has prompted analysts to predict a continued weakening in the coming months.

Industrial activity also dropped 0.5% on a monthly basis in August, marking the first setback since April, according to data from Mexico's National Institute of Statistics and Geography (INEGI). Construction saw the most significant drop, falling by 4.1% year-over-year, while mining decreased by 1.3%, continuing its tenth consecutive month of negative results.

The construction sector played a pivotal role in the downturn, with a steep 23.4% drop in civil engineering projects. These projects often encompass large-scale federal government initiatives. Monex analysts have emphasized that the construction sector's future performance will largely depend on policy announcements by the incoming government, particularly regarding the continuity of major infrastructure projects, as El Financiero reported.

“The public investment that previously drove the sector may see a reduction after the completion of key projects like the Maya Train,” noted Alejandro Saldaña, Chief Economist, Ve por Más. The uncertain economic policy environment, combined with ongoing internal and external factors such as the upcoming US election, may also hinder private investment, he added.

While construction and mining struggled, other segments of the industrial sector showed more resilience. The generation, transmission, and distribution of electricity, as well as water and gas services, increased by 2.0% in August. Meanwhile, the manufacturing sector posted modest growth, rising by 0.7% year-over-year, offsetting the 0.5% decline observed in July.

Despite the overall industrial decline, the mining sector showed some improvement. After recording six consecutive months of negative results earlier in the year, mining posted a slight 0.1% increase in August, following a 1.4% rise in July. While these figures suggest a tentative recovery, analysts caution that the sector remains volatile and subject to downside risks.

“Although we see some positive signs, the mining sector continues to face pressure from unpredictable public investment patterns and fluctuating external demand,” said Andrés Abadía, Chief Economist for Latin America, Pantheon Macroeconomics. While manufacturing and utilities have provided some stabilization, the steep decline in construction and the ongoing volatility in mining suggest that overall industrial activity may remain sluggish in the short term.

Banorte analysts expect industrial activity to exhibit a “sideways trend” for the remainder of the year, with mixed outcomes across sectors. They believe automotive manufacturing and construction-related manufacturing will likely provide some support, while civil engineering and mining are expected to face continued headwinds.