MexECON Blog

Third Quarter GDP Rises 0.5 Percent

In an initial estimate, Mexico's third-quarter gross domestic product (GDP) was up 0.5% from the previous quarter, at constant prices and adjusting for seasonal variations.  That was much weaker than the revised 0.9% rise in the second quarter, but it was better than the 0.4% increase in the first quarter.  According to the report, the expansion in the third quarter came mostly from the tertiary sector (services and government).  Output in that sector grew 0.5%, after an increase of 0.9% in the previous period.  Within the sector, output in wholesale and retail trade softened markedly, but that key industry's growth rate was still one of the strongest in the last year and a half.  Output growth in government accelerated to its fastest rate in more than two years.  Meanwhile, third-quarter output in the industrial sector (mining, utilities, construction, and manufacturing) rose 0.4%, after a 0.9% expansion in the previous quarter.  The increase came mostly from an accelerating recovery in construction, which grew at its fastest rate since the fourth quarter of 2007.  That helped offset a sharp slowdown in manufacturing growth.  Finally, output in the primary sector (farming, ranching, forestry, and fishing) jumped 2.5% in the third quarter, but because that sector is relatively small, it contributed little to overall growth.

Without seasonal adjustments, GDP in the third quarter was up 2.2% from the same period one year earlier, after increases of 1.6% in the second quarter and 1.9% in the first quarter.  The annual increase in the third quarter was the strongest since late 2012, though it was still below the country's average growth rate of 2.5% over the last two decades.  The annual rise in July through September stemmed mostly from the tertiary sector.  Output in that sector was up 2.0% year-over-year, mostly on the strength of wholesale and retail trade, real estate services, and education.  Output in the secondary sector was also up 2.0% year-over-year, reflecting the recent strength in construction and manufacturing.  Third-quarter output in the primary sector was up 7.3% year-over-year.

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

Comment:  Mexico's economic performance in the third quarter was probably better than it appears at first glance.  Although several key industries posted slower growth than in the previous period, they will probably continue to grow or even accelerate again in the coming quarters.  Wholesale and retail trade is a good example.  Activity in that industry had fallen in the first quarter, when consumers pulled back in response to new sales taxes, but it then posted a strong rebound in the second quarter, as consumers began to adjust to their higher costs.  In the third quarter, the industry was unlikely to grow as fast as when it was rebounding, but a strengthening labor market and improving consumer confidence should support continued expansion going forward.  Likewise, the third-quarter slowdown in manufacturing's growth probably came in large part from cooler exports, as economic activity softened in key developed markets.  Nevertheless, U.S. demand continues to rise, and recent data suggest Mexico's domestic inventory levels are falling.  Factory growth therefore seems likely to accelerate again in the coming months.  That seems especially true in light of the ongoing recovery in Mexican homebuilding and the government's looser fiscal policy.  Banco de México this week cut its forecast for full-year GDP growth to 2.0% to 2.5%.  Reaching the mid-point of that range would imply that fourth-quarter GDP would rise 0.5% quarter-over-quarter and 3.3% year-over-year. 

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q3 Initial QOQ

GDP 2014 Q3 Initial YOY

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