MexECON Blog

Second Quarter GDP Falls 0.7 Percent

In an initial estimate, Mexico's second-quarter gross domestic product (GDP) fell 0.7% from the previous quarter, at constant prices and adjusting for seasonal variations.  Revised figures showed GDP was flat in the first quarter and rose 0.7% in the fourth quarter of 2012.  According to the report, the decline in output during the second quarter came mostly from a 1.1% drop in the secondary sector (mining, utilities, construction, and manufacturing).  That was much worse than the sector's first-quarter decrease of 0.7% and its fourth-quarter decline of 0.4%.  Because secondary activity was flat in the third quarter of last year, it also means the sector has failed to grow for four straight quarters.  Another problem in the second quarter was that output in the tertiary sector (services and government) declined 0.4%, erasing its 0.3% rise in the first quarter.  Output in the primary sector (farming, ranching, forestry, and fishing) increased 1.2% in the second quarter, but that came after a 2.8% plunge in the first quarter.

Without seasonal adjustments, GDP in the second quarter was up 1.5% from the same period one year earlier.  That was an improvement from the revised increase of 0.6% in the first quarter, but it was still much weaker than the average increase of 4.3% from the beginning of 2010 through the end of 2012.  In the primary sector, second-quarter output was up 1.3% year-over-year, mostly reflecting higher production of crops such as sugarcane, corn, oranges, and wheat.  In contrast, output in the secondary sector was down 0.6% year-over-year.  Manufacturing output was up modesty, owing to increased output of products such as autos and auto parts, food and beverages, and computers and business equipment.  However, utility production was essentially flat, while mining production and construction were down sharply.  Finally, second-quarter output in the tertiary sector was up 2.6% year-over-year, reflecting good increases in industries ranging from wholesale and retail trade to financial services.

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

Comment:  For the first three years of the current expansion, Mexican GDP was growing much faster than its long-run average of 2.6% per year.  U.S. demand was beginning to recover after a sharp recession, companies on both sides of the border were rebuilding inventories, and increased competitiveness was allowing Mexican manufacturers to steal market share from other countries.  Industrial activity jumped, hiring improved, and investment and consumer spending strengthened.  Now, however, Mexico's growth rate has been below average for two straight quarters.  The main problem is that U.S. demand remains relatively weak.  The modest catch-up spending and inventory rebuilding at the beginning of the recovery have given way to a slow-motion expansion, and Mexican exports have flattened out.  At the same time, the Mexican government has tightened spending and shifted housing support policies, putting a damper on construction activity.  The resulting slowdown in hiring and a series of food price hikes have stunted consumer spending.  Many observers believe that factors such as a rebound in U.S. demand and Mexico's own recent economic reforms will boost growth later this year.  However, the surprisingly weak performance in the second quarter suggests it might be tough to get the economy moving appreciably faster in the near term.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2013 Q2 Initial

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