MexECON Blog

Second Quarter GDP Rises 3.2 Percent

In an initial estimate, the official statistics agency INEGI said Mexico's second-quarter gross domestic product (GDP) rose by a whopping 3.2% from the previous quarter, based on constant prices and adjusting for seasonal variations.  The increase was more than enough to reverse the revised decline of 0.6% in the first quarter, and it was even better than the revised increases of 2.4% in each of the last two quarters of 2009.  In fact, the quarterly growth in the second quarter was the strongest in over fourteen years.  The report indicated that gross value added in the primary sector (farming, ranching, forestry, and fishing) jumped 6.8% in the second quarter, marking its strongest gain since 2006. In the secondary sector (mining, utilities, construction, and manufacturing), value added was up 1.7%.  In the tertiary sector (services and government activity), value added was up 0.9%.

On a non-adjusted basis, second-quarter GDP was up 7.6% from the same period one year earlier, accelerating from the year-over-year gain of 4.3% in the first quarter and a decline of 2.3% in the final quarter of 2009.  The last time Mexican GDP grew so fast was at the beginning of 1998.  The report showed that second-quarter output in the primary sector was up 4.8% year-over-year, while output in the secondary sector was up 7.8%.  Within the secondary sector, manufacturing output was up a robust 13.4%, marking its best year-over-year gain since at least 1994 and accounting for almost one-third of the total rise in Mexican GDP over the last year.  Finally, output in the tertiary sector was up 7.4% year-over-year, driven primarily by strong increases in wholesale and retail trade, and in transportation and marketing.

Comment:  Mexico's blockbuster GDP growth in the second quarter is encouraging because several recent reports had pointed to a slowdown in the economic recovery.  Although today's figures could well be revised downward when a more detailed report is released on September 22, the report in general seems to suggest that any slowing in parts of the Mexican economy has been minimal.  Nevertheless, the Mexican economy still faces a key risk if the U.S. economic recovery continues to slow.  To date, Mexico's economic rebound has been stoked by U.S. inventory rebuilding and a modest rise in U.S. corporate and consumer spending.  Those factors have boosted Mexican exports, prompting a strong rise in industrial activity and hiring.  If the U.S. economic recovery peters out before the rest of the Mexican economy is growing well, Mexican growth could stall as well.

Patrick Fearon, CFA
Vice President, Fund Management

                       Mexican Gross Domestic Product (GDP)
                       Seasonally Adjusted, Million 2003 Pesos
                                             Source:  INEGI
GDP 2010 Q2

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