MexECON Blog

Exports Continue to Drive Growth

In a report on Monday, the government confirmed that Mexico's third-quarter gross domestic product (GDP) was up 0.5%, after adjusting for seasonal variations and stripping out price changes.  That was weaker than the 0.9% expansion in the second quarter, but it was stronger than the 0.4% rise in the first quarter.  According to the report, most of Mexico's economic growth in July through September came from international trade.  Mexican exports of goods and services were up 2.3%, after a 4.1% rise in the second quarter.  Imports rose just 0.7%, following a decline in the previous period.  Separately, private consumption was up a modest 0.5% in the third quarter, after a rise of 1.2% in the second quarter, and private investment was up 1.6%, following the previous gain of 2.4%.  Perhaps most notable, third-quarter government spending jumped 2.0%, marking its first quarterly increase of the year and its strongest gain in more than four years.

Without seasonal adjustments, third-quarter GDP was up 2.2% from the same period one year earlier.  In the second quarter, GDP was up just 1.6% year-over-year.

Comment:  In the two decades from 1993 through 2013, Mexican GDP rose at an average annual rate of 2.5%.  The growth rate in the third quarter was therefore a bit below average.  On the other hand, growth has become more balanced.  Net exports remain the key source of growth, and given the accelerating expansion in the United States and the weakness of the peso, they are likely to keep growing.  Now, private consumption and private investment have become almost as important.  The growth in consumption spending shows that consumers have adjusted well to the hike in sales taxes that took effect in January, and that they have become encouraged by a modest strengthening in the labor market.  Meanwhile, the recent strength in private investment undoubtedly comes in large part from the ongoing recovery in residential building.  Finally, government spending has now become a significant source of growth, reflecting the Peña Nieto administration's recent decision to loosen fiscal policy.  In sum, Mexican economic growth looks set to continue at a modest pace in the coming quarters.  The main risks include the possibility that falling oil prices could discourage corporate investment and declining U.S. interest rates could spark an outflow of capital.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q3 Revised

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