MexECON Blog

Exports and Investment Drive Fourth Quarter Growth

New data confirms that Mexico's fourth-quarter gross domestic product (GDP) was up 0.7% from the third quarter, after adjusting for seasonal variations and stripping out price changes.  That was better than the 0.5% expansion in the previous quarter, though it was still weaker than the 1.0% jump in the second quarter of 2014.  According to the report, the expansion in the fourth quarter came mostly from accelerating exports and private investment.  Mexican exports of goods and services advanced 3.5%, strengthening from their 2.7% rise in the third quarter and marking their third straight quarterly increase.  Private fixed investment jumped 2.6%, for its fifth straight increase and its strongest gain since the second quarter of 2012.  Private consumption rose 0.5%, just as it did in the third quarter.  The main headwinds in the fourth quarter were declining government outlays, weak inventory investment, and a big jump in imports.

Without seasonal adjustments, fourth-quarter GDP was up 2.6% from the same period one year earlier.  In the third quarter, GDP had been up just 2.2% year-over-year.

In all of 2014, Mexican GDP was up 2.1%, accelerating from its 1.3% rise in 2013 but still somewhat weaker than its average growth rate of 2.5% over the last two decades.

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

Comment:  Mexico's initial report on GDP, issued about six weeks after the end of the quarter, focuses on growth by industry.  The second report, such as today's, focuses on what type of demand is driving the growth.  Importantly, the figures today confirm that increased economic momentum in the United States and the recent fall in the peso are boosting the demand for Mexican exports.  As measured in dollars, exports look relatively weak, but when translated into pesos, they are clearly on an upswing.  If the low peso starts to undercut imports as well, the net impetus from foreign trade should get even stronger.  The strength in exports also appears to be boosting commercial investment, even as residential investment continues to rebound.  Finally, the resulting drop in Mexican unemployment is supporting further increases in consumption spending.  One key risk going forward is the continued weakness in global oil prices.  The Mexican government relies heavily on oil revenues, so it has already responded by cutting its 2015 budget, and it warned this week that the budget will probably be cut further in 2016.  Another key risk is the likelihood that U.S. interest rates will start rising in the coming months.  Along with low oil prices, rising U.S. interest rates have the potential to spark a destabilizing outflow of capital, even more downward pressure on the peso, and the possibility of accelerating inflation.  If Banco de México responds to these threats by hiking interest rates, as it has already signaled that it may do, it would probably put the brakes on the Mexican economy again.

Patrick Fearon, CFA
Vice President, Fund Management

GDP 2014 Q4 Revised

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