MexECON Blog

Exports Boost First Quarter Growth

In an updated estimate, Mexico's first-quarter gross domestic product (GDP) rose a strong 1.3% from the previous quarter, after adjusting for seasonal variations and stripping out price changes.  That was almost double the upwardly revised increase of 0.7% in the fourth quarter of 2011, and it marked the strongest expansion since last year's second quarter.  According to the report, released Thursday by the official statistics agency INEGI, the main source of Mexico's growth in the first quarter was a reacceleration in foreign sales of goods and services.  Mexican exports in the first quarter jumped 5.4%, after a gain of just 1.0% in the previous quarter and a decline of 1.5% in the quarter before that.  The second-most important source of growth was private investment, which rose 6.4% after two straight quarters of declines.  The final big source of growth was private consumption spending, which rose 1.0%.  The main drag on growth in the first quarter was a rise in imports.  However, the increase in purchases from abroad was not enough to prevent a substantial decline in Mexico's trade deficit during the quarter.

Without seasonal adjustments, Mexico's first-quarter GDP was up 4.6% from the same period one year earlier.  That was Mexico's strongest year-over-year growth rate in almost two years.  It also marked the ninth straight quarter of above-average growth.  In the two decades from 1991 to 2011, the country's economy grew at an average rate of just 2.6% per year.

Comment:  In the second half of 2011, Mexican exports softened in response to the maturing of the U.S. economic recovery and the fallout from Europe's worsening debt crisis.  As 2012 began, the headwinds from abroad eased, so it should be no surprise that exports reaccelerated and overall economic growth strengthened again.  The problem now is that the European crisis seems to be intensifying anew.  Therefore, the really encouraging aspect of the revised GDP report is that it shows Mexican consumption spending continuing to grow at a steady pace.  As is natural at this stage of the cycle, consumption spending has been one of the top two drivers of Mexican economic growth in five of the last seven quarters.  The rise in consumption most likely reflects a gradual fall in the unemployment rate, strengthening remittances from Mexicans working abroad, improving credit conditions, and generally modest inflation.  Because of the momentum in consumption spending, Mexico may have some cushion against the negative impacts of any financial crisis arising out of Europe.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2012 Q1 Revised B

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