MexECON Blog

Third Quarter GDP Growth Confirmed

In an updated estimate from INEGI, the official statistics agency, Mexico's third-quarter gross domestic product (GDP) was up 0.7% from the preceding quarter, after adjusting for seasonal factors and stripping out price increases.  That followed a strong expansion of 2.3% in the second quarter and a revised decline of 0.1% in the first quarter.  The main driver of growth in the third quarter was domestic consumption spending, which grew 1.9%, after gains of 1.3% in the second quarter and 0.4% in the first quarter.  In addition, inventory investment contributed more to growth in the third quarter than at any other point in the current recovery.  Private fixed investment also made a modest contribution to growth, with an increase of 0.6%.  In contrast with the earlier phase of the recovery, net exports were a significant drag on growth.  Exports in the third quarter were down 4.1%, marking their first decline since the recovery started, while imports edged up 0.2%.  Government spending was essentially flat.

Without seasonal adjustments, Mexico's third-quarter GDP was up a healthy 5.3% from the same period one year earlier.  While that was not quite as good as the expansion of 7.6% in the year ended in the second quarter, it was still comfortably stronger than Mexico's compound annual growth rate of 2.6% in the period from 1989 to 2009.

Comment:  Even though Mexico's economic growth slowed a bit in the third quarter, the expansion remains healthy at the moment.  Most important, the report confirms that domestic consumer spending is accelerating, which should help offset an expected moderation in Mexican exports.  Indeed, the report today suggests Mexico's foreign trade may already be losing steam.  Nevertheless, private fixed investment still needs to rise much faster in order to fully make up for the fall off in exports.  The rise in inventory investment in the third quarter may reflect improving confidence among Mexican businesses, but fixed investment is still facing headwinds, such as tight bank lending and rising drug violence.  It still may be some time before investment is a stronger contributor to Mexican growth, and until it does, Mexico's economic recovery faces downside risks.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2010 Q3 Quarterly

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