MexECON Blog

Fourth Quarter GDP Falls 2.3 Percent YOY

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.

Comment:    The 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
 GDP 4Q 2010 B

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