MexECON Blog

International Trade Drives Return to Growth

A new report confirms Mexico's third-quarter gross domestic product (GDP) was up 0.8% from the second quarter, after adjusting for seasonal variations and stripping out price changes.  That was weaker than the typical increases from 2009 to 2011, when the Mexican economy was first recovering from the global financial crisis, but it was enough to reverse the 0.5% contraction in the second quarter.  New details in the report show the return to growth stemmed mostly from improved international trade.  Mexican exports of goods and services rose 1.9% in the third quarter, after increases of 4.0% in the second quarter and 2.4% in the first.  Just as important, imports plunged 2.2%, erasing their 1.8% gain in the prior period.  Private consumption edged up 0.3% in the third quarter, but that reversed only about half of its 0.6% decline in the second quarter.  Public consumption jumped 1.1%, erasing its small decrease in the previous period and marking its strongest rise since late 2011, while inventory investment posted a similar surge.  However, those sectors are a relatively small part of the Mexican economy, so the increases had little impact on the overall growth rate.  The biggest negative for the economy was investment.  Public investment fell 1.5% in the third quarter, after a 0.9% decline in the second quarter.  Private investment skidded 2.0%, after decreases of 1.3% in the prior period and 0.7% in the period before that.

Without seasonal adjustments, Mexico's third-quarter GDP was up just 1.3% from the same period one year earlier.  In the second quarter, GDP was up 1.6% year-over-year, and in the first quarter, it was up 0.6%.  For comparison, Mexican GDP rose at an average annual rate of 2.6% in the two decades from 1992 to 2012.

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

Comment: The initial GDP report last month showed Mexico's return to growth from July to September came mostly from increased activity in wholesale and retail trade, transportation, and government services, along with a jump in manufacturing output.  I had been skeptical of that, given that other recent reports have pointed to ongoing weakness in wholesale and retail demand.  Today's report helps explain the apparent discrepancy.  On the one hand, today's breakout showing increased exports is consistent with last month's figures showing stronger manufacturing.  Likewise, today's figures showing a sharp rise in government consumption is consistent with the previous report of increased public services, while the data showing tepid consumer demand is consistent with the other recent reports showing weakness in retailing.  However, the third-quarter increases in exports, inventories, private consumption, and public consumption would have been barely enough to offset the fall in private and public fixed investment during the period.  The thing that really gave a boost to Mexican growth in the third quarter was that imports fell so much.  Imports are subtracted from GDP, so a fall in purchases abroad serves to boost the economy.

A close look at Mexico's recent trade data shows the decline in third-quarter imports came largely from reduced purchases of foreign capital goods.  In other words, Mexico has not only been reducing the amount of value it creates by putting into place its own new office buildings, factories, machinery, and equipment, but it is also reducing the amount of such valuable items that it imports from abroad.  The fall in imports is therefore a reflection of the continued broad weakness in Mexican investment.  Mexican capital goods imports could continue to fall if tight government spending keeps holding down public works projects and shifting housing support policies keep weighing on residential construction.  Reduced imports may make Mexico's GDP growth look good temporarily, but over the long term, weak capital investment threatens to hold down growth.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2013 Q3 Revised

A new report confirms Mexico's third-quarter gross domestic product (GDP) was up 0.8% from the second quarter, after adjusting for normal seasonal variations and stripping out price changes.  That was weaker than the typical increases from 2009 to 2011, when the Mexican economy was first recovering from the global financial crisis, but it was enough to reverse the 0.5% contraction in the second quarter.  New details in the report show the return to growth stemmed mostly from improved international trade.  Mexican exports of goods and services rose 1.9% in the third quarter, after increases of 4.0% in the second quarter and 2.4% in the first.  Just as important, imports plunged 2.2%, erasing their 1.8% gain in the prior period.  Private consumption edged up 0.3% in the third quarter, but that reversed only about half of its 0.6% decline in the second quarter.  Public consumption jumped 1.1%, erasing its small decrease in the previous period and marking its strongest rise since late 2011, while inventory investment posted a similar surge.  The biggest negative for the economy was investment.  Public investment fell 1.5% in the third quarter, after a 0.9% decline in the second quarter.  Private investment skidded 2.0%, after decreases of 1.3% in the prior period and 0.7% in the period before that.
Without seasonal adjustments, Mexico's third-quarter GDP was up just 1.3% from the same period one year earlier.  In the second quarter, GDP was up 1.6% year-over-year, and in the first quarter, it was 0.6%.  For comparison, Mexican GDP rose at an average annual rate of 2.6% in the two decades from 1992 to 2012.
The report was released today by INEGI, the official statistics agency.
Comment:  The initial GDP report last month showed Mexico's return to growth from July to September came mostly from increased activity in wholesale and retail trade, transportation, and government services, along with a jump in manufacturing output.  I had been skeptical of that, given that other recent reports have pointed to ongoing weakness in wholesale and retail demand.  Today's report helps explain the apparent discrepancy.  On the one hand, today's breakout showing increased exports is consistent with last month's figures showing stronger wholesale activity, transportation services, and manufacturing.  Likewise, today's figures showing a sharp rise in government consumption is consistent with the previous report of increased public services, while the data showing tepid consumer demand is consistent with the other recent reports showing weakness in retailing.  However, the third-quarter increases in exports, inventories, private consumption, and public consumption would have been barely enough to offset the fall in private and public fixed investment during the period.  The thing that really gave a boost to Mexican growth in the third quarter was that imports fell so much.  Imports are subtracted from GDP, so a fall in purchases abroad serves to boost the economy.  A close look at Mexico's recent trade data shows the decline in third-quarter imports came largely from reduced purchases of foreign capital goods.  In other words, Mexico has not only been reducing the amount of value it creates by putting into place its own new office buildings, factories, machinery, and equipment, but it is also reducing the amount of such valuable items that it imports from abroad.  Mexican capital goods imports could continue to fall if tight government spending keeps holding down public works projects and shifting housing support policies keep weighing on residential construction.  Reduced imports may make Mexico's GDP growth look good temporarily, but over the long term, weak capital investment threatens to hold down growth.
Patrick Fearon, CFA
Vice President, Fund Management

 

 

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