MexECON Blog

Exports Boosting Economic Growth

In a report released at mid-month, the government confirmed that Mexico's second-quarter gross domestic product (GDP) was up 1.0% from the first quarter, after adjusting for normal seasonal variations and stripping out price changes.  That marked a significant acceleration from the 0.4% increase in the first quarter and the 0.2% rise in the fourth quarter of 2013.  According to the report, Mexican exports of goods and services rose 3.9% in the second quarter, accelerating from their 1.8% gain in the prior quarter and marking their strongest increase since the beginning of 2012.  At the same time, second-quarter imports were up just 0.1%.  Another key source of strength in the second quarter was private domestic demand.  In particular, personal consumption spending was up 1.4%, and gross private fixed investment was up 1.7%.  The main detractors from growth were a sharp pullback in inventory investment and yet another decline in public sector investment.

Without seasonal adjustments, second-quarter GDP was up 1.6% from the same period one year earlier, after a year-over-year gain of 1.9% in the first quarter.

Comment:  Mexican economic growth is clearly accelerating again, mostly on the strength of rebounding export growth and a nascent recovery in residential construction.  As I discussed on the release of the initial report on second-quarter GDP, the surprising thing about Mexico's economic acceleration from April through June was the strength of consumer spending.  Because of a series of new sales taxes that took effect in January, consumption demand at the turn of the year had been very weak, but it now appears consumers have adjusted to the increased taxes better than expected.  The problem is that the Mexican labor market remains relatively soft, while consumer price inflation is relatively high.  That is likely to limit the gains in consumer spending going forward.  As a result, it is not clear whether the Mexican economy can accelerate much further.  Over the two decades from 1993 to 2013, Mexico's economy grew at an average annual rate of 2.5%.  It may not be able to surpass that rate by very much in the coming quarters.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q2 Revised

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