MexECON Blog

Third Quarter GDP Rises 0.7 Percent

In an initial estimate, Mexico's third-quarter gross domestic product (GDP) rose 0.7% from the previous quarter, based on constant prices and adjusting for seasonal variations.  Second-quarter GDP was revised downward to show a rise of 2.3%, and first-quarter GDP was revised upward to show a gain of 0.6%.  According to the report, from the national statistics agency INEGI, output increased in primary activities (farming, ranching, forestry, and fishing), secondary activities (mining, utilities, construction, and manufacturing), and in tertiary activities (services and government).

Without seasonal adjustments, third-quarter GDP was up 5.3% from the same period one year earlier.  That marked a deceleration from the 7.6% gain in the second quarter, but it was still stronger than the year-over-year increase in the first quarter.  The report said third-quarter output in the primary sector was up a robust 8.9% year-over-year, mostly because of strong increases in the output of farm products, such as sugar cane, sorghum, corn, wheat, bell peppers, and tomatoes.  Output in the secondary sector was up 6.2% year-over-year, in large part because of a 9.6% rise in manufacturing output.  Meanwhile, output in the tertiary sector was up 4.2%, reflecting increased activity in retail and wholesale trade, transport, information services, and real estate services.

Comment:  The deceleration in Mexican growth during the third quarter should come as no surprise.  Growth during the second quarter was extremely strong, even after the revisions in today's report, and such strong growth was clearly unsustainable.  In spite of the slowdown, growth in the third quarter was encouraging.  The significant contribution from farming was especially gratifying to those of us at Terra Nova Ventures, where we focus strongly on agriculture.  In addition, the increased activity in manufacturing was more broad-based than expected.  That could suggest the country's current economic rebound is becoming somewhat less dependent on exports of trucks, autos, and auto parts.  Nevertheless, the services sector continues to lag, which may in part reflect the impact of rising violence by drug cartels.  In addition, most observers still expect Mexican growth to moderate in the coming quarters.  The big upcoming challenge is that exports are expected to slow in response to weaker U.S. demand, as the impact of fiscal stimulus begins to wane in the United States, as U.S. inventory rebuilding peters out, and as U.S. consumers continue to husband their resources and pay down debt.

Patrick Fearon, CFA
Vice President, Fund Management

     Mexican Gross Domestic Product (GDP)
   Seasonally Adjusted, Millions of 2003 Pesos
                         Source:  INEGI
GDP 2010 Q3

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