MexECON Blog

Exports Drive Fourth Quarter GDP Growth

In an updated estimate, Mexico's fourth-quarter gross domestic product (GDP) was up 0.8% from the previous quarter, after adjusting for seasonal variations and stripping out price changes.  That marked a significant acceleration from the third-quarter increase of 0.4%.  According to the report, released Tuesday by the official statistics agency INEGI, exports were Mexico's main source of growth in the final three months of 2012.  Exports rose 2.6% in the fourth quarter, easily reversing their 1.5% decline in the third quarter and marking their strongest increase since the beginning of the year.  Private consumption was also a key source of growth, posting a rise of 1.1% and almost matching its 1.2% gain in the previous quarter.  Private fixed investment expanded 2.1%, while government consumption grew 0.8%.  Inventory investment in the final quarter of the year was positive, but because it was smaller than in the previous period, it detracted slightly from overall growth.  The most important factors holding back growth were public investment and imports.  Public-sector construction and other investment plunged 4.5% in the fourth quarter, after increases of 0.3% in the third quarter and 8.0% in the second quarter, and imports jumped 4.0%, for their first rise since the first quarter.

Without seasonal adjustments, Mexico's fourth-quarter GDP was up 3.2% from the same period one year earlier.  That matched the year-over-year increase in the third quarter, but it was weaker than the increases of 4.5% in the second period and 4.9% in the first.

Comment:  Mexico's economy continued to grow well in the second half of 2012.  GDP growth may have slowed to 3.2% year-over-year in both the third and fourth quarters, but that still beat the country's average annual growth rate of 2.6% from 1991 to 2011.  The question now is whether the economy will continue to perform well.  Some recent data has been weak, raising the possibility that Mexico could be entering a period of more modest growth or perhaps a serious correction.  Fortunately, the GDP report provides evidence that any problems at the turn of the year were just temporary.  For example, much of the fourth-quarter drop in public investment almost certainly came from slow government decision making ahead of the December inauguration of Mexico's new president.  Now that the new administration is in place, bureaucrats can get back to work, and the stage is set for a quick rebound in road building, school construction, and other public projects.  The GDP report also seems to reflect the year-end debate over the U.S. "fiscal cliff."  For example, some of the fourth-quarter acceleration in Mexican exports probably came from U.S. customers pulling orders forward ahead of potential funding cuts in 2013.  The slowdown in Mexican inventory investment probably reflects both the strength in actual exports and a fear of weaker sales in the future.  Mexican exports did drop sharply in January, but because the U.S. fiscal tightening has been more moderate than feared, and because the U.S. economy is showing signs of renewed vigor, there is an increasing likelihood that Mexican exports, investment, and hiring will strengthen again in the coming months.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2012 Q4 Revised

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