MexECON Blog

Growth Trends Weaken in Fourth Quarter

In an updated estimate, Mexico's fourth-quarter gross domestic product (GDP) rose 0.4% from the previous quarter, after adjusting for seasonal variations and stripping out price changes.  The increase was in line with the initial estimate.  It also marked a big slowdown from the 1.2% rise in the third quarter and the 1.5% expansion in the second quarter.  According to the report, from the official statistics agency INEGI, the main source of growth in the fourth quarter was a slowdown in the rate at which Mexican firms were working down inventories (building up inventories increases GDP, while cutting inventories does the opposite).  The second-most important source of growth was public investment, which surged 10.7% in the quarter.  The final big source of growth was private consumption spending.  It grew 0.6%, after a 1.8% increase in the previous quarter.  The main drag on growth was the trade sector, where exports were flat but imports increased 0.4%.

Without seasonal adjustments, Mexico's fourth-quarter GDP was up 3.7% from the same period one year earlier, after year-over-year increases of 4.5% in the third quarter and 3.2% in the second quarter. 

Comment:  Mexico's fourth-quarter growth was decent, but it was still the slowest since the current expansion began in mid-2009.  Even worse, the character of the growth was poor.  The deceleration in inventory drawdown probably reflects weaker final demand.  It also raises the risk that companies have been left with higher stockpiles than planned, which would likely hold down future orders for new goods.  Although a surge in public investment also boosted growth, that spending can be volatile.  There is no indication it can be sustained.  Indeed, if the public sector overspent - perhaps with an eye to the presidential elections coming up in July - it may have to implement a painful retrenchment in the second half of the year or risk widening the deficit and fueling inflation.  Fortunately, recent reports suggest Mexican growth reaccelerated at the beginning of 2012.  Nevertheless, Mexico's fourth-quarter performance serves as a reminder that the country is vulnerable to several extraneous risks, such as the possibility of a new European debt crisis, poor economic policymaking in the run-up to the elections, and rising inflation that could discourage consumption spending. 

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2011 Q4 Contributions

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