The government statistics agency INEGI has confirmed that
Mexico's gross domestic product (GDP) in the fourth quarter of 2009
was down an inflation-adjusted 2.3% from the same period one year
earlier. Despite the negative figure, however, that marked a
substantial improvement from the year-over-year declines of 6.1% in
the third quarter and 10.0% in the second quarter.
On a quarter-over-quarter, seasonally-adjusted basis, the new
report was even more positive. The data showed that
fourth-quarter GDP was up 2.0% from the previous quarter.
That marked the third straight quarterly increase, following gains
of 2.5% in the third quarter and 0.3% in the second quarter.
Prior to that, Mexican GDP had fallen without interruption for a
full year (see chart below).
In the first three quarters of its recovery, Mexican GDP has
already risen 4.9%, erasing almost half its decline during the
recession. Most of the GDP increase (approximately 3.6%) has
come from rising exports, as inventory rebuilding in the United
States boosted the demand for Mexican manufactured goods.
Perhaps surprisingly, domestic consumption has been the second-most
important source of growth, followed by domestic inventory
investment. The most important detractors from growth have
been surging imports and falling private investment in fixed
assets, such as buildings and equipment.
continued GDP growth in the fourth quarter provides additional
evidence that Mexico's economy should keep recovering. The
unexpectedly strong contribution from domestic consumption demand
is particularly encouraging, as a broader recovery is likely to be
more resilient. Nevertheless, risks remain. If the U.S.
recovery peters out, Mexican exports are likely to temporarily
stagnate or even decline again. Even if U.S. demand remains
strong, Mexico's heavy reliance on foreign raw materials and
intermediate goods means that any rise in exports will be offset to
a significant degree by increased imports. Finally, Mexico
continues to suffer from a severe credit crunch, which is a key
reason for the country's ongoing decline in investment.
Patrick Fearon, CFA
Vice President, Fund Management