MexECON Blog

Fourth Quarter GDP Rises 1.3 Percent

In an initial estimate, Mexico's fourth-quarter gross domestic product (GDP) rose 1.3% from the previous quarter, based on constant prices and adjusting for seasonal variations.  Not only was the increase better than expected, but readings for the previous two quarters were revised upward to show a rise of 0.8% in the third quarter and 2.4% in the second quarter.  According to the report, from the official statistics agency INEGI, the growth in the Mexican economy in the fourth quarter was quite balanced.  Output rose 1.1% in the primary sector (farming, ranching, forestry and fishing) and 1.3% in the secondary sector (mining, utilities, construction, and manufacturing).  Output grew 1.2% in the tertiary sector (services and government).

Without seasonal adjustments, Mexico's fourth-quarter GDP was up 4.6% from the same period one year earlier.  That marked a continued moderation from the revised year-over-year increases of 5.3% in the third quarter and 7.7% in the second quarter, but it was still slightly better than the year-over-year increase of 4.5% in the first quarter.  The report showed fourth-quarter output in the primary sector was up a robust 9.9% year-over-year, mostly because of strong increases in the production of farm products such as corn, mangoes, sugar cane, tomatoes, and onions.  Output in the secondary sector was up 4.7% year-over-year, as manufacturing continued to grow rapidly.  Finally, output in the tertiary sector was up 4.2% year-over-year, with particularly strong increases in retail trade, wholesale trade, and financial services.

For full-year 2010, Mexican GDP was up 5.5%, almost erasing the 6.1% decline registered in 2009 and marking the country's strongest economic growth in a decade.  Mexico's growth rate in 2010 was also more than twice as strong as its average annual increase of 2.6% from 1989 through 2009.

Comment:  The moderation in Mexico's year-over-year growth rate over the last couple of quarters is not alarming.  The strong increases early in this cycle were not sustainable.  In fact, today's report is very encouraging.  The Mexican economy is still growing much faster than its long-term average.  Just as important, the acceleration in the services sector is yet more evidence that domestic demand is picking up and could take up some of the slack in the event export growth slows.  While Mexican growth is likely to keep moderating a bit in the coming quarters, the growth rate is likely to stay historically strong.  The key test for Mexico will come in the later stages of this cycle.  By that time, the government should try to implement structural reforms that would break up monopolies, encourage investment, and bring more people into the formal economy.  If the government fails to take those steps, Mexico's economy could eventually fall back into the slow growth of the last two decades.  For comparison, note that Mexico's average annual growth rate of 2.6% from 1989 to 2009 is only slightly faster than the average U.S. growth rate of 2.5% in the same period.  Mexico still needs to implement key reforms in order to really grow like an "emerging market."

Patrick Fearon, CFA
Vice President, Fund Management

                      Mexican Gross Domestic Product (GDP)
                        Seasonally Adjusted, Millions of Pesos
                                             Source:  INEGI
GDP 2010 Q4

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