MexECON Blog

Public Investment and Imports Weigh on GDP

Data today confirms that Mexico's first-quarter gross domestic product (GDP) was up 0.3% from the fourth quarter of 2013, after adjusting for normal seasonal variations and stripping out price changes.  That was modestly better than the revised 0.1% gain in the fourth quarter, but it was much weaker than the 1.0% increase in the quarter before that.  According to the report, Mexican exports of goods and services jumped 1.9% in the first quarter, erasing their 1.6% retreat in the fourth quarter.  However, the rise in exports was essentially offset by a 4.5% surge in imports.  The rise in imports followed a 0.8% increase in the previous quarter, and it marked the biggest import jump since the beginning of 2010.  Similarly, the report showed that gross private fixed investment jumped 1.0% in the first quarter, accelerating from its 0.3% gain in the fourth quarter and marking its best increase since the third quarter of 2012, but that rise was offset by a 6.5% slump in public investment.  The fall in public investment was the third in the last four quarters, and it was the biggest since the third quarter of 2009.  Because of these offsetting developments, the modest acceleration in Mexican economic growth during the first quarter came almost entirely from small increases in private consumption and inventory investment.

Without seasonal adjustments, first-quarter GDP was up 1.8% from the same period one year earlier, marking a significant acceleration from the rise of just 0.7% in the fourth quarter.  However, the year-over-year increase was still weaker than Mexico's average annual GDP growth of 2.5% in the two decades from 1993 to 2013.

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

Comment:  Today's report confirms my view that Mexican economic growth is likely to remain lackluster for a while yet.  While there have been some modest improvements in a few sectors, such as exports and private business investment, those improvements have not been dramatic, and they are being largely counterbalanced by continued problems in other areas.  A recent change in government housing policy continues to weigh on residential construction, while tight fiscal policy is restraining government spending on public works projects.  Relatively slow hiring and new sales taxes at the beginning of 2014 have also been a headwind for consumer spending.  I continue to believe that the government's economic reform program holds out some promise that Mexico's growth rate could accelerate in a meaningful way in the coming years.  In the near term, however, growth is likely to remain uninspiring.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q1 Revised

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