MexECON Blog

First Quarter GDP Rises 0.5 Percent

In a preliminary estimate, Mexico's first-quarter gross domestic product (GDP) was up 0.5% from the previous quarter, at constant prices and adjusting for seasonal variations.  That followed revised increases of 0.7% in the fourth quarter of 2012 and 0.3% in the third quarter.  According to the report, first-quarter output in the primary sector (farming, ranching, forestry, and fishing) was down 1.1%, after a 2.9% rise in the previous period.  Output in the secondary sector (mining, utilities, construction, and manufacturing) edged up 0.1%, erasing part of its fourth-quarter decline of 0.3%.  Output in the tertiary sector (services and government) jumped 1.5%, accelerating from an increase of 0.9% in the fourth quarter and marking its strongest rise since the third quarter of 2011.

Without seasonal adjustments, Mexican GDP in the first quarter was up just 0.8% from the same period one year earlier, slowing from year-over-year increases of 3.2% in each of the previous two quarters and marking the weakest rise since a string of declines during the 2008-2009 recession.  In the primary sector, first-quarter output was up 2.8% year-over-year, mostly reflecting increased production of crops such as corn, wheat, oats, avocados, sugar cane, and onions.  In contrast, output in the secondary sector was down 1.5% year-over-year.  Mining output was slightly higher than one year earlier, but utility production, construction activity, and manufacturing output were all down significantly.  Finally, first-quarter output in the tertiary sector was up 1.9% year-over-year, as good increases in mass media, real estate, and wholesale and retail trade were partly offset by declines in education and general government.

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

Comment:  The first-quarter rise of just 0.8% year-over-year marked the first time Mexico's economic growth rate has fallen below its 20-year average of 2.6% since the beginning of the recovery.  Part of the problem in January through March was that growth in the first quarter of 2012 was exceptionally strong, making for a tougher comparison.  However, the figures also reflect more substantial challenges.  The weakness in the first quarter was in part a delayed response to problems that began earlier.  The biggest such problem was that slow U.S. growth and worries about the U.S. "fiscal cliff" weighed on Mexican exports and manufacturing at the end of 2012.  The installation of Mexico's new president in December was also disruptive, not only because government decision making was frozen ahead of the inauguration, but also because government priorities and regulations are now shifting.  The construction industry has been particularly impacted, with new rules crimping home building even as hotel development remains in a multi-year slump.  Fortunately, today's report confirms that Mexico's industrial sector started to rebound from those problems in the first quarter.  The stumbling block was that the industrial slowdown in late 2012 produced a modest rise in unemployment and a pullback in consumer confidence that persisted into 2013.  Food supply shocks have also boosted inflation and further discouraged spending.  As is normal at this stage in the cycle, personal consumption spending has recently been the main source of Mexico's economic growth.  Therefore, the question now is whether the industrial sector can reaccelerate enough to spark renewed hiring and boost consumer spending again. 

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2013 Q1 Initial

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