MexECON Blog

Fourth Quarter GDP Growth Confirmed

In an updated estimate, Mexico's fourth-quarter gross domestic product (GDP) was up 1.3% from the previous quarter, after adjusting for seasonal factors and stripping out price increases.  That followed increases 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 main driver behind Mexico's growth in the fourth quarter was domestic consumption spending, which grew 1.1%.  Exports fell 1.6%, marking their first decline since early 2009, but the fall was essentially offset by a 1.4% drop in imports.  Public fixed investment and private inventory investment also made positive contributions to growth in the fourth quarter, but private fixed investment posted a disappointing decline. 

Without seasonal adjustments, Mexico's fourth-quarter GDP was up 4.6% from the same period one year earlier, reflecting some moderation from the year-over-year increases of 5.3% in the third quarter and 7.7% in the second quarter.

For full-year 2010, Mexico's 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 in 2010 was also more than twice as strong as its average annual increase of 2.6% from 1989 through 2009.

Comment:  While Mexican economic growth is moderating from the blockbuster rates achieved earlier in the current recovery, the growth is becoming more balanced and healthier.  In contrast to the beginning of the recovery, when growth stemmed almost exclusively from rising exports, the data now show that domestic consumption spending has growth for six straight quarters and has been the biggest source of growth for the last two quarters.  If investment spending now starts to grow on a sustained basis, the country's economic rebound will likely continue to be strong and become even more self-sustainable.  In fact, Economy Minister Cordero said this week that incoming data has been healthy enough that growth in 2011 could well overshoot current projections and come in at 5.5% for a second straight year.  Nevertheless, there are short-term risks, such as the strong peso and rising violence by drug cartels.  In the medium term and beyond, a key risk is simply that growth will fall back to the low rates of the last two decades (note that Mexico's 20-year average growth rate is little better than the average U.S. growth rate of 2.5% over the same period).  In order to keep the economy growing strongly, Mexican leaders still need to implement key economic reforms, such as breaking up the country's many monopolies and oligopolies, improving competition, encouraging more investment, and bringing more people into the formal economy.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2010 Q4 Revised

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