MexECON Blog

Consumption Drives Third Quarter Growth

In an updated estimate, Mexico's third-quarter gross domestic product (GDP) was up 0.5% from the previous quarter, after adjusting for seasonal variations and stripping out price changes.  That followed increases of 0.8% in the second quarter and 1.3% in the first quarter.  According to the report, the growth in July through September came mostly from personal consumption spending.  Consumption was up a strong 1.0% in the period, accelerating from a gain of 0.2% in the second quarter and marking its strongest increase in a year.  Fixed investment also helped boost the growth rate.  It rose 0.9% in the third quarter, after an increase of 0.6% in the second.  Public consumption spending was flat, so it had no impact on growth.  Exports and imports had no net impact because they both fell by a similar amount.  A drop in inventories detracted modestly from growth.

Without seasonal adjustments, the country's third-quarter GDP was up just 3.3% from the same period one year earlier.  That was still above Mexico's average annual growth rate of 2.6% from 1991 to 2011, but it was the weakest year-over-year growth rate since the second quarter of 2011.

Comment:  Mexican consumption and investment rebounded nicely in the third quarter, after a lull in the second quarter.  However, the drop in trade and inventory investment is a sign that weak growth abroad is starting to impact the economy.  Recent data show industrial production has started to fall, and concern about a possible "fiscal cliff" of sharp tax hikes and spending cuts in the United States has put the brakes on investment.  Mexico was fortunate that its economy was firing on all cylinders as the U.S. fiscal problems began to loom.  That has given the economy some resilience to better withstand any sudden weakening in U.S. demand.  If the fiscal cliff is avoided, Mexico's economy would also be well poised to reaccelerate.  Nevertheless, the country's current strong expansion phase is clearly in danger of ending.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2012 Q3 Revised

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