MexECON Blog

Updated GDP Data Confirms Recession Risk

In an updated estimate, Mexico's second-quarter gross domestic product (GDP) was down 0.7% from the first quarter, after adjusting for seasonal variations and stripping out price changes.  That marked the first decline in Mexican GDP since mid-2009.  It also showed the economy has worsened considerably since its revised flat performance in the first quarter and its 0.7% increase in the final quarter of 2012.  The main reason for the decline in the second quarter was that private consumption spending decreased 0.8%, after a rise of 0.9% in the first quarter and a jump of 1.7% in the fourth quarter.  Gross fixed investment declined 1.9%, more than offsetting its increase of 1.0% in the previous period.  On a more positive note, international trade gave a slight boost to GDP, as a 1.2% rise in exports beat a 1.0% rise in imports.  Inventory investment turned slightly positive after a decline in the first quarter.

Without seasonal adjustments, Mexico's second-quarter GDP was up 1.5% from the same period one year earlier.  That was stronger than the 0.6% rise in the first quarter, but it was significantly weaker than the country's average growth rate of 2.6% over the last two decades.  It was also much weaker than the average increase of 4.3% from 2009 to 2012.

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

Comment:  Today's report confirms that Mexico is moving in the direction of a recession.  In fact, after the GDP decline in the second quarter, it would only take a fall in the third quarter to meet the customary definition of a recession as two straight quarters of decreasing output.  A further decline in the third quarter is indeed possible.  Mexican exports are faltering in the face of continued slow economic growth in the United States, and tighter government spending and shifting policies at home are undercutting investment.  Recent reports show Mexican construction output has fallen in eight of the last twelve months, and in July, it was down 6.3% year-over-year.  The resulting slowdown in hiring has had a big impact on consumer confidence, but household purchasing power has also been undermined by a surge in food prices earlier in the year and a continuing drop in remittances by family members working north of the border.  Mexico could probably still avoid a recession if U.S. demand soon rebounds as some observers expect, or if the government loosens its purse strings again as it has recently promised.  That would allow people to again focus on Mexico's improving international competitiveness and the new president's ongoing structural reforms, which should boost the country's longer-term prospects.  For now, however, it appears the economy has hit a speed bump.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2013 Q2 Revised

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