MexECON Blog

Second Quarter GDP Rises 1.1 Percent

In an initial estimate, Mexico's second-quarter gross domestic product (GDP) rose 1.1% from the previous quarter, based on constant prices and adjusting for seasonal variations.  Not only was the increase better than expected, but growth in the first quarter was revised upward to 0.6%.  According to the report, from the official statistics agency INEGI, output in the primary sector (farming, ranching, forestry, and fishing) fell 2.5%, after a decline of 2.4% in the first quarter.  However, output in the secondary sector (mining, utilities, construction, and manufacturing) jumped 1.3%, accelerating from a gain of 0.7% in the previous quarter and marking its best increase in one year.  Output in the tertiary sector (services and government) was up 1.0%, after a rise of 0.8% in the first quarter.

Without seasonal adjustments, Mexican GDP in the second quarter was up 3.3% from the same period one year earlier, marking a continuing slowdown from the year-over-year gains of 4.6% in the first quarter, 4.4% in the fourth quarter of 2010, and 5.1% in the third quarter of 2010.  In the primary sector, output declined on a year-over-year basis for the first time in five quarters, with a fall of 3.7%.  According to the report, the decline stemmed mostly from lower output of products such as corn, sorghum, sugar cane, tomatoes, and peppers, following the country's unusual freezes in late winter.  In the secondary sector, output was up 3.4% year-over-year, after a rise of 5.2% in the first quarter, as strong gains in utility production, manufacturing, and construction offset a decline in mining output.  Finally, output in the tertiary sector was up 3.6% year-over-year, after a rise of 4.2% in the first quarter.  Government activity in the second quarter was down sharply from one year earlier, but that was offset by gains in all other services, with strong increases in professional services, cultural services, and commercial trade.

Comment:  With the global economic recovery faltering and recent Mexican data decidedly mixed, the report on Mexico's second-quarter growth was a pleasant surprise.  The acceleration in quarterly growth was particularly impressive, though it was concentrated in manufacturing and commercial trade.  Despite the good quarterly growth, however, the sharp economic slowdown in the world's developed countries has already started to have an impact, just as the Mexican economic recovery was moving into a slower, more mature phase.  Mexican growth is continuing to slow on a year-over-year basis.  The country's year-over-year growth rate has now slowed almost to its average annual growth rate of 2.8% from 1990 to 2010.  Mexico's economic recovery was sparked by rising exports beginning in 2009, but now the country's growth also comes from investment and consumption spending.  Nevertheless, slower growth and foreign economic problems present significant risks.  If foreign demand withers and volatile financial markets sap confidence, Mexican economic growth could slow much more than expected.

Patrick Fearon, CFA
Vice President, Fund Management

                        Mexican Gross Domestic Product (GDP)
                      Seasonally Adjusted, Millions of 2003 Pesos
                                              Source:  INEGI
GDP 2011 Q2

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