Mexico's economy grows more than expected in August, but still sluggish

By Brendan O'Boyle

MEXICO CITY, Oct 22 (Reuters) - Mexico's economy performed better than expected in August, rebounding from a drop in July and lifted by gains in agriculture, although the outlook remains weighed down by uncertainty.

Latin America's second largest economy grew 0.6% in August from the prior month, a swing to growth after July's 0.9% contraction, according to the Global Indicator of Economic Activity (IGAE) published on Wednesday by Mexico's INEGI statistics agency.

The month-on-month growth is higher than INEGI's preliminary estimate last month of 0.1%, which was also forecast by a Reuters poll of analysts.

Analysts offered a tempered take on August's numbers.

While growth is expected to recover next year , driven by hopes for a successful renegotiation of the U.S.-Canada-Mexico (USMCA) trade deal and an expected short-term boost from the soccer World Cup, Mexico's economy remains hampered by weaker public spending and elevated uncertainty over U.S. tariffs .

"Overall, the economy remains sluggish," Banamex said.

The Mexican bank welcomed a "positive surprise" from Wednesday's report but warned that much of August's growth was driven by a volatile agricultural sector, which expanded over 14% in August from July but would likely reverse in coming months.

Compared to the same month last year, growth was negative, contracting 0.9%, though slightly better than analyst projections.

A Reuters poll of 33 economists earlier this month forecast gross domestic product to grow 0.5% in 2025 in 1.3% in 2026.

Banamex cited the economic slowdown in the U.S. and the impact of both external and domestic uncertainty on investment as factors for weak growth.

Data published earlier this month showed industrial output fell for the third straight month in August, driven by contractions in construction and mining.

Uncertainty has been fueled this year by tensions with the U.S., Mexico's top trading partner. Mexico has also promised to levy tariffs on Asian countries it does not have a trade deal with, including China.

"Going forward, real activity is likely to face headwinds from domestic and external policy uncertainty, a negative fiscal impulse, and soft business confidence," said Goldman Sachs' Albert Ramos. He added that resilient credit flows and solid wage growth, boosted by the government's minimum wage increases, are likely to benefit household spending.