Growth Revisions Reinforce Mexico Over Brazil Outlook

The release of Q2 real GDP data has, on the one hand, corroborated ou r growing suspicion that economic growth in H113 underperformed in Mexico, while, on the other hand, done little to change our view that the Brazilian economy will see weaker growth ahead. This is despite the fact that the Q2 GDP print surprised to the upside in Brazil's case, and equally disappointed in the case of Mexico ( see table ). Even before the release of Q2 GDP data, we have started to pare back our real GDP growth forecasts for both economies.

Although we have lowered our real GDP growth forecasts for both Brazil and Mexico in recent weeks , we have previously cautioned about a slowdown in Mexico's economic activity in Q2 ( see 'Sustained Manufacturing Weakness Warrants Caution', July 31 ), as w e saw increasing evidence of an underperformance of the manufacturing sector throughout the first half of 2013. Although we still expect a pick-up in growth over the course of H213, we recently lowered our full-year real GDP growth forecast to 2.3% from 3.0%.

Nevertheless, while we are below consensus on Mexican real GDP growth in 2014 and 2015, at 3.5% for both years, this is still a positive outlook for the economy. We believe that consensus expectations are overly optimistic on the scope of the manufacturing sector recovery in the next few years . Moreover, although we are encouraged by President Enrique Peña Nieto's continued reform drive, we believe that expectations of a major boost to growth from foreign direct investment into the energy sector over the coming years are somewhat premature at this stage.

Still Erring On The Side Of Caution
Real GDP Growth Forecasts for Brazil (LHS) And Mexico (RHS), %

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Brazil, Mexico