MexECON Blog

Third Quarter GDP Rises 0.5 Percent

In a preliminary estimate, Mexico's third-quarter gross domestic product (GDP) was up 0.5% from the previous quarter, based on constant prices and adjusting for seasonal variations.  That followed revised increases of 0.8% in the second quarter and 1.3% in the first quarter, and it marked Mexico's weakest economic growth since the first quarter of 2011.  According to the report, from the official statistics agency INEGI, output in the primary sector (farming, ranching, forestry, and fishing) fell 0.5% in the third quarter, erasing most of the revised 0.6% increase in the second quarter.  Output in the secondary sector (mining, utilities, construction, and manufacturing) increased 0.7%, after also rising 0.6% in the previous quarter.  Output in the tertiary sector (services and government) rose 0.7% as well, but that marked a slowdown from the second-quarter increase of 1.1%.

Without seasonal adjustments, Mexican GDP in the third quarter was up 3.3% from the same period one year earlier.  That marked a further slowing after year-over-year increases of 4.4% in the second quarter and 4.9% in the first quarter, and it was the slowest annual gain since the second quarter of 2011.  In the primary sector, third-quarter output was up just 1.7% from one year earlier, as increased production of farm products such as sugar cane and tomatoes was largely offset by weakness in other primary industries.  In the secondary sector, third-quarter output was up 3.6% year-over-year, largely because of strong gains in manufacturing and construction.  Finally, tertiary-sector output in the third quarter was up just 3.3% year-over-year, after increases of 4.6% in the second quarter and 5.3% in the first quarter.  The annual rise in the tertiary sector was the weakest since the recession of 2008-2009.  Service industries such as mass media and finance posted good gains, but those gains were partially offset by weakness in government activity, education, wholesale and retail trade, and professional and technical services.

Comment:  In spite of the slowdown in the third quarter, Mexico's economy continues to grow well.  The year-over-year increase of 3.3% in third-quarter GDP was still above Mexico's average annual growth rate of 2.6% in the 20 years from 1991 to 2011.  The industrial sector is also holding up relatively well in the face of Europe's debt crisis and slowing demand around the world.  The resilience of the industrial sector probably reflects Mexico's close ties to the growing U.S. economy and the country's increased competitiveness in recent years.  The big warning flag was the relative underperformance of the service sector.  Since much of the service sector is oriented toward the domestic market, a sharp slowdown there suggests domestic demand may be faltering.  As I have discussed previously, Mexico's current high inflation rate is likely undermining consumer purchasing power.  At the same time, the threat of greater problems abroad may be starting to discourage some business activity.  Mexico's economic growth therefore could continue to moderate in the coming quarters.

Patrick Fearon, CFA
Vice President, Fund Management

                                       Mexican Gross Domestic Product
                                 Seasonally Adjusted, Millions of 2003 Pesos
                                                   Source:  INEGI
GDP 2012 Q3 Initial

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