MexECON Blog

First Quarter GDP Jumps 1.3 Percent

In an initial estimate, Mexico's first-quarter gross domestic product (GDP) jumped 1.3% from the previous quarter, based on constant prices and adjusting for seasonal variations.  That was almost double the 0.7% increase in the fourth quarter of 2011, and it was the strongest rise since the second quarter of last year.  According to the report, from the official statistics agency INEGI, output in the primary sector (farming, ranching, forestry, and fishing) rose 2.4% in the first quarter, rebounding from a revised decline of 0.3% in the fourth quarter.  Output in the secondary sector (mining, utilities, construction, and manufacturing) rose 1.5%, after increasing 1.0% in the previous quarter, and output in the tertiary sector (services and government) was up 0.8%, accelerating from a rise of 0.4% in the last quarter of 2011.

Without seasonal adjustments, Mexican GDP in the first quarter was up 4.6% from the same period one year earlier.  Not only was that stronger than the 3.9% increase in the fourth quarter, but it was Mexico's best year-over-year growth rate since the third quarter of 2010.  In the primary sector, output was up a strong 6.8% from one year earlier, in large part reflecting the steep production declines from unusual freezes in early 2011.  Primary products posting particularly large gains included tomatoes, potatoes, beans, avocados, and oats.  In the secondary sector, output was up 4.5%, after three straight quarters of year-over-year increases at 3.5%.  Mining output posted its second straight year-over-year increase, and utility and construction activity continued to post good gains.  However, the stand-out performer was manufacturing, which was up 5.5%, after an increase of 4.0% in the previous quarter.  Finally, first-quarter output in the tertiary sector was up 5.0% year-over-year, after rising 4.4% in the fourth quarter.  The increase was driven in large part by a 13.0% jump in activity in the financial sector and a 6.7% increase in wholesale and retail trade.

Comment:  The reacceleration in Mexican economic growth at the beginning of 2012 probably came in part from rebounding exports.  Recent data has demonstrated that exports are growing faster again after a slowdown in the second half of last year.  However, the strong contribution from financial services, wholesale and retail trade, and other domestically-oriented sectors suggests the main driver was probably consumer spending.  Several recent reports have suggested that a gradual fall in Mexican unemployment is encouraging greater domestic spending on durable goods and other products and services.  In the international sphere, the balance of risks is probably neutral for Mexico, as an improving U.S. economy is likely to help keep exports strong but a worsening European debt crisis could dampen confidence and activity.  In the domestic sphere, the good momentum in investment and consumer demand is likely to keep the economy growing well, but a key risk is that the presidential election in July could produce political instability or policy mistakes, while violence by drug cartels could start to have a more noticeable impact on growth.

Patrick Fearon, CFA
Vice President, Fund Management

                                    Mexican Gross Domestic Product
                            Seasonally Adjusted, Millions of 2003 Pesos
                                                    Source:  INEGI
GDP 2012 Q1 Initial

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