MexECON Blog

Second Quarter GDP Rises 1.0 Percent

In an initial estimate, Mexico's second-quarter gross domestic product (GDP) was up 1.0% from the previous quarter, at constant prices and adjusting for seasonal variations.  That marked a significant acceleration from the revised increases of 0.4% in the first quarter and 0.2% in the fourth quarter of 2013.  According to the report, the rise in the second quarter came mostly from a 1.1% expansion in the tertiary sector (services and government).  Within that sector, wholesale and retail trade posted its biggest gain in more than three years.  There was also a 1.0% rise in the secondary sector (mining, utilities, construction, and manufacturing), as factory output continued to grow at a strong pace and construction rebounded to post its best quarterly increase since 2010.  The primary sector (farming, ranching, forestry and fishing) increased 0.9%, but because it is relatively small, it contributed little to overall growth.

Without seasonal adjustments, GDP in the second quarter was up 1.6% from the same period one year earlier.  That was a bit weaker than the revised gain of 1.9% in the year ended in the first quarter, but it was still stronger than the year-over-year increase of just 0.7% in the fourth quarter.  The annual rise in April through June stemmed mostly from the tertiary sector, which was up 1.8% year-over-year.  Consistent with the quarterly changes discussed above, the year-over-year growth in the tertiary sector came in large part from wholesale and retail trade, real estate services, and media and telecommunications.  Meanwhile, the secondary sector was up 1.0%, as manufacturing posted a decent increase, but mining and construction were still down from their year-earlier levels.  The primary sector was up 2.6% from one year ago.

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

Comment:  Mexican economic growth is clearly accelerating from its weak spot in late 2013 and early 2014.  One key impetus has been a recent rebound in exports, as U.S. demand continues to strengthen.  Just as important, homebuilding and public works activity are finally lifting the construction industry again after a long period of extreme weakness.  What is most surprising in today's report, however, is that consumer spending also staged a big rebound in the second quarter.  I have been saying that the Mexican consumer is adjusting relatively well to the new sales taxes that took effect in January.  Those sales taxes weighed heavily on consumption spending in the first quarter, but it now seems the consumer has been adjusting even better than I had imagined.  Nevertheless, the Mexican labor market remains relatively soft.  Unemployment is falling, but only gradually.  That is likely to be a headwind for the consumer for a while yet, and it could therefore limit how much further the Mexican economy can accelerate.  As a reminder, Banco de México last week cut its forecast for 2014 economic growth to just 2.0% to 2.8%.  The mid-point of that range is almost equal to Mexico's average annual growth rate of 2.5% over the last couple of decades.  In order for full-year growth to reach that level, GDP in the third and fourth quarters would have to be up more than 3.0% on a year-over-year basis.  It is not yet clear that the economy can accelerate that much.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q2 Initial QOQ

GDP 2014 Q2 Initial YOY

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