Despite the growth weakness in H1 and the visible effect of the slowdown in the labour market, retail sales on average have continued to trend up this year - in part due to the low base effect in H1 2014 and partly due to lower inflation this year. Mexico's retail sales growth will likely average a strong 4.7% yoy in H1 compared with 2.2% in H1 14 and 3.2% in H2 14. Sequentially however, retail sales growth will fall sharply to 1.1% qoq annualised in Q2 from 9.6% in Q1.



The recent pace of retail sales is broadly consistent with the 2-4% yoy growth in private consumption spending although the correlation between retail sales and overall consumption growth is not quite strong enough. Strong sales growth in 2011-12 was not reflected in overall consumption, and more recently, consumption has lagged sales growth despite improving.



"Going forward we expect some moderation in retail sales until growth improves and the labour market strengthens. However, falling inflation presents some upside risk to sales growth and overall consumption," says Societe Generale.