MexECON Blog

Second Quarter GDP Rises 0.5 Percent

In an initial estimate, Mexico's second-quarter gross domestic product (GDP) was up 0.5% from the previous quarter, at constant prices and adjusting for seasonal variations.  That marked an acceleration from the rise of 0.4% in the first quarter, but it was weaker than the 0.7% increase in the fourth quarter of 2014.  According to the report, the expansion in the second quarter came mostly from continued growth in the large tertiary sector (services and government).  Output in that sector was up 0.9% quarter-over-quarter, after a 0.7% rise in the previous period.  Within the tertiary sector, the industries posting the most significant gains were entertainment, professional services, real estate, and wholesale and retail trade.  Output also grew in the small primary sector (farming, ranching, forestry, and fishing), with an increase of 0.5%.  However, output in the secondary sector (mining, utilities, construction, and manufacturing) was essentially stagnant in the second quarter, as small increases in manufacturing and construction were offset by significant declines in utility output and mining production.

Without seasonal adjustments, GDP in the second quarter was up just 2.2% from the same period one year earlier, after increases of 2.6% in each of the previous two quarters.  Almost all of the annual rise in the second quarter came from the tertiary sector.  Output in that sector was up 3.1% year-over-year, accelerating from increases of 3.0% in the first quarter and 2.9% in the fourth quarter.  Growth in the primary sector came in at a healthy 2.7% in the second quarter.  However, output in the secondary sector was up just 0.5% year-over-year, held down by the continued fall in mining output.

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

Comment:  Mexico's recent economic growth has come in very close to its average annual growth rate of 2.4% from 1994 to 2014, but the performance has been below what many observers expected.  In fact, both Banco de México and the Ministry of Finance have recently been forced to cut their projections for full-year 2015.  At the beginning of the year, the central bank expected growth of 3.0% to 4.0% this year, but it now sees growth of just 1.7% to 2.5%.   Falling oil output has been a significant problem, shaving some 0.5% off the overall annual growth rate in each of the last two quarters.  In addition, softer demand from the United States has weighed on Mexican manufacturing activity, and a recent recovery in the construction sector has cooled.  Fortunately, an improved labor market has helped spur stronger consumer spending.  That is showing up as improved growth rates for industries such as entertainment and retail trade.  Mexican oil production looks set to keep falling in the near term, but as long as the manufacturing and construction sectors don't soften much further, hiring may be good enough to continue supporting consumer demand.  That, in turn, could keep Mexico's economy growing at a modest rate.  The key risk is that a hike in U.S. interest rates in the coming months could spark a destabilizing outflow of capital that would require Banco de México to hike its benchmark interest rate.

Patrick Fearon, CFA
Portfolio Manager

GDP 2015 Q2 Initial QOQ

GDP 2015 Q2 Initial YOY

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