MexECON Blog

First Quarter GDP Rises 0.4 Percent

In an initial estimate, Mexico's first-quarter gross domestic product (GDP) was up 0.4% from the previous quarter, at constant prices and adjusting for seasonal variations.  That followed a 0.7% increase in the fourth quarter of 2014 and a 0.5% rise in the third quarter.  According to the report, the expansion in the first quarter came mostly from continued growth in the large tertiary sector (services and government).  Output in that sector was up 0.5% quarter-over-quarter, after a 0.7% rise in the previous period.  Within the tertiary sector, the industries posting the most significant gains were mass media, transportation and logistics, and government services.  Output also grew in the small primary sector (farming, ranching, forestry, and fishing), with an increase of 3.0%.  However, output in the secondary sector (mining, utilities, construction, and manufacturing) fell 0.2% in the first quarter, as increases in manufacturing and utility production were offset by declines in mining and construction.

Without seasonal adjustments, GDP in the first quarter was up 2.5% from the same period one year earlier, after increases of 2.6% in the fourth quarter and 2.2% in the third quarter.  Most of the annual rise in the first quarter came from the tertiary sector.  Output in that sector was up 2.9% year-over-year, just as it was in the previous period.  First-quarter output in the secondary sector was up a modest 1.4% year-over-year, held down by the continued fall in mining output.  Growth in the primary sector was up 6.8% year-over-year.

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

Comment:  Some observers have cast Mexico's first-quarter GDP data in a decidedly negative light, and even the Mexican government responded by cutting its forecast for economic growth in full-year 2015 to a range of 2.2% to 3.2%.  For perspective, however, it is important to remember that the year-over-year growth rate of 2.5% was virtually identical to Mexico's average growth rate over the last two decades.  The performance was by no means a disaster.  Nevertheless, it is true that Mexican economic growth hit a soft spot during the winter.  Softer demand from the United States weighed on manufacturing activity, oil production kept falling, and the government continued to cut investment spending in response to lower oil revenues.  Those issues outweighed the recent drop in Mexico's unemployment rate, leading to a slowdown in consumer spending and a hiccup in construction.  Looking forward, I believe the soft spot could continue for a while yet.  U.S. firms are still struggling with challenges such as the strong dollar, weak economic growth in Europe and Asia, reduced energy investment in the face of low oil prices, and excess inventories, so U.S. demand for Mexican exports may remain soft in spite of the current low peso.  There is also little evidence that global oil prices will rise anytime soon, or that Mexican petroleum production will increase in the near term (the recent energy reform to allow private-sector investment in the energy sector will take years to have a meaningful impact).  Finally, a likely rise in U.S. interest rates in the coming months could spark an outflow of capital and higher Mexican interest rates.  The key bright spot is that the recent improvement in Mexico's labor market could eventually prompt higher consumer spending and help limit the slowdown in overall economic growth.

Patrick Fearon, CFA
Portfolio Manager

GDP 2015 Q1 Initial QOQ

GDP 2015 Q1 Initial YOY

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