MexECON Blog

First Quarter GDP Rises 0.5 Percent

In an initial estimate, Mexico's first-quarter gross domestic product (GDP) rose 0.5% from the previous quarter, based on constant prices and adjusting for seasonal variations.  The increase was weaker than anticipated, and it was considerably slower than the revised expansion of 1.1% in the fourth quarter of 2010.  According to the report, from the official statistics agency INEGI, output in the primary sector (farming, ranching, forestry, and fishing) fell 2.3% from the previous quarter, apparently reflecting reduced vegetable output after February's devastating freezes.  Output in the secondary sector (mining, utilities, construction, and manufacturing) was up 0.7%, but that marked a slowdown after increases of 1.1% in each of the two previous periods.  Output in the tertiary sector (services and government) was up 0.9%, after increases of 1.2% in each of the two previous periods.

Without seasonal adjustments, Mexico's GDP in the first quarter was up 4.6% from the same period one year earlier, after revised gains of 4.4% in the fourth quarter and 5.1% in the third quarter.  In the primary sector, output was up just 1.2% year-over-year, as healthy gains in cattle, corn, sorghum, and sugar cane output were partially offset by the reduced vegetable production.  In the secondary sector, output was up a healthy 5.2% year-over-year, reflecting increases in manufacturing, construction and utilities.  Output in the tertiary sector was up 4.4% year-over-year, led by strong increases in the retail and media industries. 

Comment:  The slowdown in Mexico's quarterly growth rate at the beginning of 2011 is consistent with expectations expressed on this blog over the last few months.  As Mexico's economic recovery matures, growth is likely to moderate.  However, it is encouraging that growth actually accelerated on a year-over-year basis in the first quarter, and it remains well above the compound annual growth rate of 2.8% from 1990 to 2010.  The continuing strong growth of the services sector is added confirmation that the Mexican economy is now being driven not only by exports and manufacturing but also by domestic demand.  That should help ensure continued good growth in the coming quarters.  The main near-term risks include the possibility that exports could slow in response to the strong peso or a new international crisis such as the earthquake in Japan.  Also, rising violence by drug cartels could start to have a bigger negative impact on domestic consumption or investment.  In the longer term, growth is unlikely to remain as strong as it is now if the government does not enact key structural reforms that would break up monopolies, deregulate the labor market, and otherwise increase competition and encourage investment.

Patrick Fearon, CFA
Vice President, Fund Management

Mexican Gross Domestic Product (GDP)
Seasonally Adjusted, Millions of 2003 Pesos
Source:  INEGI
GDP 2011 Q1

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