MexECON Blog

Fourth Quarter GDP Rises 0.4 Percent

In an initial estimate, Mexico's fourth-quarter gross domestic product (GDP) rose 0.4% from the previous quarter, based on constant prices and adjusting for seasonal variations.  Growth in the third quarter was revised downward to 1.2%, but growth in the second quarter was revised upward to 1.5%.  According to the report, from the official statistics agency INEGI, output in the primary sector (farming, ranching, forestry, and fishing) fell 6.9% in the fourth quarter, apparently reflecting the severe drought affecting most of the country.  In the previous quarter, the primary sector posted a revised increase of 9.8%.  Fourth-quarter output in the secondary sector (mining, utilities, construction, and manufacturing) was up 0.7%, after a revised increase of 0.6% in the previous quarter.  Output in the tertiary sector (services and government) was up 05%, slowing from a rise of 2.2% in the third quarter.

Without seasonal adjustments, Mexican GDP in the fourth quarter was up 3.7% from the same period one year earlier, compared with year-over-year increases of 4.5% in the third quarter and 3.2% in the second quarter.  In the primary sector, output was down 0.5%, reflecting lower production of a wide range of products, including corn, wheat, oats, beans, grapes, and apples.  In the secondary sector, output was up 3.2%, after year-over-year gains of 3.5% in the third quarter and 3.4% in the second quarter.  Mining output has now declined on a year-over-year basis for five straight quarters, but that has been offset by strong increases in utility output, construction, and manufacturing.  Finally, fourth-quarter output in the tertiary sector was up 4.3%, after year-over-year increases of 4.9% in the third quarter and 3.3% in the second quarter.

Because of stronger growth earlier in the year, Mexican GDP was up 3.9% in full-year 2011.  For comparison, Mexico's average annual growth rate from 1990 to 2010 was just 2.8%.

Comment:  Mexico's fourth-quarter growth was the weakest since the current expansion began in mid-2009.  The sharp drop in agriculture only accounted for a small part of the weakness.  More important were the slowdowns in the industrial and service sectors.  Of course, some slowdown is to be expected as the expansion matures.  Financial volatility and concerns about the European debt crisis in late 2011 also undoubtedly had an impact.  The recent reacceleration in the U.S. economy and the momentum in Mexico's own domestic demand are positives going forward, but risks remain.  Growth could slow further if the U.S. recovery falters or the situation in Europe worsens again.  If the drought continues, the negative impact on agriculture could also worsen, and in any case, accelerating inflation could start to dampen consumer spending.  The presidential election in July poses the risk of political instability and policy mistakes, while violence by the drug cartels could start to have a more noticeable impact on activity.  Mexico's economy still looks set to keep growing in the coming months and quarters, but there is an increased chance that the growth rate will slow.

Patrick Fearon, CFA
Vice President, Fund Management

                                       Mexican Gross Domestic Product
                               Seasonally Adjusted, Millions of 2003 Pesos
                                                        Source:  INEGI
GDP 2011 Q4

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