Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 36
THE DRUMMER'S EAR | RHYTHMIC REASONING
Although steadying of late, business sentiment is currently at
its most depressed levels in about two years in the sub-50
‘pessimistic’ territory since March at the all-economy level, with
only nonfinancial services respondents maintaining a neutral bias
(although much weaker than over the past two years). Newsbased policy uncertainty has sharply cooled from its late-2024/
early-2025 levels—when post-Mexican/U.S. elections and the
U.S.’s tariff announcements bred heightened anxiety—thanks to
greater clarity on the tariffs front but remains somewhat elevated
amid tariffs unpredictability.
Fig. 2: Residential construction strength helps to steady private
construction, but uncertainty weighs on machinery investment
YoY % change, 3mma
60%
40%
20%
0%
Fig. 3: Employment situation at its worst outside of recessions
12%
8%
YoY % change
2). A ~7% YoY YTD decline has left M&E investment outlays at
their lowest since late-2022 as firms hold back on increasing or
maintaining their productive capacity. For the first time in three
years, Mexico’s transportation equipment manufacturing sector is
contracting on a YoY basis. In the year-to-August, passenger cars
assemblies have declined by 5% YoY while buses and trucks output
has flatlined.
4%
0%
-4%
-8%
-12%
2000
2004
2008
Insured employment
2012
2016
2020
2024
Insured manufacturing employment
Source: IMSS, Scotia Wealth Management.
Besides weak labour market momentum, household incomes have
also had to contend with strict U.S. immigration policy via sharp
declines in remittance flows (Fig. 4). Already decelerating from 7.5%
YoY in 2023, to 2.3% YoY in 2024, international remittances have
contracted by 5.5% YoY in the year-to-July. Fears of deportation
have likely lowered employment activity (and thus earnings)
among undocumented migrants, with remittances also weighed
by record-low border crossings (would-be remittances senders)
and to a lesser degree effectuated deportations. The trend for
remittances growth is likely to remain soft over the medium-term
amid immigration shocks.
Fig. 4: International remittances contract
amid tight U.S. immigration policy
-20%
-40%
2021
Residential construction
2022
2023
Private construction
2024
80%
2025
Private mach. and equip.
Source: INEGI, Scotia Wealth Management.
Household consumption remains and should remain the main
engine for underwhelming Mexican GDP growth, but consumption
growth will be subdued as hiring appetite has evidently soured.
Formal employment data have shown a continued deceleration
in job gains that began in mid-2023 (when insured employment
was expanding by nearly 4%) through today with practically no
new YoY hiring growth since 1Q25 (Fig. 3). After holding flat
through most of 2024, job losses in the manufacturing sector of
around 2% YoY point to tariff-related headcount reductions among
manufacturers, added to employment declines in the extraction
(Pemex cuts) and construction industries. Employment in servicesoriented sectors remains positive, though muted (and liable to
remain so) amid sluggish economic and aggregate income growth.
Per data for insured employment going back to 1994, Mexico has
never experienced zero or negative jobs growth – as it’s flirting with
at present – outside of recessionary periods.
YoY % change, 3mth moving avg.
2020
60%
40%
20%
0%
-20%
-40%
2000
2004
2008
2012
2016
2020
2024
International remittances (USD)
Source: Banxico, Scotia Wealth Management.
On the prices and monetary policy front, an acceleration in
core merchandise inflation over the first half of the year
injected a slightly more cautious tone among those in Banxico’s
policymakers. From a December print of 2.5%, core merchandise
inflation rose to 4.1% as of August, albeit opposite to the 4.9% to
4.4% deceleration in core services inflation (Fig. 5). Risks in goods
prices aside, looser Fed rates and guidance stance in recent weeks
(and in the months ahead) as well as the continued sluggishness of
the domestic economy have kept Banxico on a cutting trajectory
that is expected to last until the first quarter of 2026 to a terminal
rate of 6.50%.
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