MexECON Blog

Third Quarter GDP Rises 0.8 Percent

In an initial estimate, Mexico's third-quarter gross domestic product (GDP) rose 0.8% from the previous quarter, at constant prices and adjusting for seasonal variations.  Revised figures show GDP fell 0.5% in the second quarter and rose 0.2% in the first quarter.  According to the report, the rise in output during the third quarter came mostly from a 1.3% jump in the tertiary sector (services and government).  That jump was the sector's strongest since early 2012, and it was more than enough to offset the sector's modest decline in the previous quarter.  Also contributing to growth in the third quarter was an increase in the secondary sector (mining, utilities, construction, and manufacturing).  Output in that sector rose 0.9%, almost reversing its 0.9% decline in the second quarter and marking its first increase since early 2012.  Output in the primary sector (farming, ranching, forestry, and fishing) fell 0.5%, after jumping 4.2% in the previous period.

Without seasonal adjustments, GDP in the third quarter was up 1.3% from the same period one year earlier.  That was slightly weaker than the revised increase of 1.6% in the second quarter, but it was much healthier than the 0.6% rise in the first quarter.  The expansion in overall GDP stemmed mostly from a 2.3% increase in the services sector, where the report showed good growth in mass media, wholesale and retail trade, and business services.  Output in the primary sector was up 1.0% year-over-year, but output in the secondary sector was down 0.6%.  The decline in the secondary sector stemmed mostly from the continuing fall in Mexican construction activity.

The report was released today by INEGI, the official statistics agency.

Comment:  Mexico's third-quarter expansion was stronger than expected by most analysts, including myself.  Several recent indicators had pointed to continued softness in the economy.  In fact, a report yesterday said that both wholesale and retail sales fell for a second straight month in September.  The inconsistency with the GDP report suggests there may be some statistical issues with the various data sources, but today's report should still put to rest concerns that Mexico could be slipping into recession.  It now appears that the economy is merely stuck in low gear for a while.  The main challenges for Mexico remain as they have been in recent quarters:  regulatory changes that have discouraged housing construction, tight government spending, and weakening exports.  Fortunately, however, there are some indications that the economy could accelerate modestly again.  Government officials have promised to accelerate spending, and the Congress has passed a 2014 budget that expands the deficit dramatically.  Also, recent reports suggest the U.S. economy may be strengthening, which should boost the demand for Mexican goods and services.  It seems unlikely that Mexican growth will soon surpass its long-term average of approximately 2.6%, but at least the outlook is a bit better than it was a few months ago.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2013 Q3 Initial

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