MexECON Blog

Trade, Consumer Spending Spur First Quarter Growth

A report today confirms that 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 a healthy gain in consumer spending and improved international trade.  First-quarter consumer spending jumped 1.2%, after increases of 0.5% in each of the previous two quarters.  Exports rose just 1.8%, after a rise of 3.4% in the fourth quarter, but imports were virtually flat, producing a big improvement in the trade balance.  Private fixed investment, public fixed investment, public consumption, and inventory investment  all posted decent increases, but because those categories make up a relatively small portion of overall demand, they had only a limited impact on the overall growth rate.

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.  Consumption spending in January through March was up 3.2% year-over-year, for its best annual rise since mid-2013.  Exports in the period were up a strong 12.1% year-over-year, while imports were up just 6.6%.  Total investment was up 5.4% year-over-year.

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

Comment:  The Mexican economy continues to grow moderately.  Even with the relatively weak quarter-over-quarter growth at the beginning of the year, the year-over-year rise was in line with the average annual increase over the last two decades.  I consider that to be impressive, given the many headwinds that hit the Mexican economy over the winter.  For example, U.S. demand softened considerably, as manufacturers north of the border faced challenges such as the strong dollar, weak economic growth in Asia and Europe, and a pullback in investment in the energy sector.  Meanwhile, Mexico's falling petroleum production and low global oil prices have weighed on government revenues, forcing officials to keep a tight rein on spending, even as the recovery in the country's construction sector hit a soft spot.  Even though consumer spending accelerated in the first quarter, it has not strengthened as much as would be expected given the recent improvement in the Mexican labor market.  The latest data from the United States and Mexico provides some hope that those headwinds will begin to dissipate in the coming months, so I expect the Mexican economy to keep growing modestly.  The main risk is that a Greek exit from the Eurozone and higher U.S. interest rates this summer could spark a disruptive outflow of capital and a rise in Mexican interest rates.

Patrick Fearon, CFA
Portfolio Manager

GDP 2015 Q1 Revised B


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