IHS Global Insight Perspective | |
Significance | According to the National Statistics Office (INEGI) Mexico's GDP increased 4.6% year-on-year (y/y) and seasonally adjusted data show a 0.5% increase over the previous quarter; trade numbers for April confirm the decelerating trend. |
Implications | When annualised, the 0.52% growth of the first quarter yields 2.1%, which is excessively low compared to our forecast for full-year 2011; the y/y growth rate mirrors what we forecast in terms of growth for this year. IHS Global Insight expects an upward revision of the seasonally adjusted number. |
Outlook | Mexico will continue to follow the business cycle of the United States, in particular in the manufacturing industry; services in Mexico, which were lagging behind the recovery, are now aligned with the rest of the economy and we do not expect them to be a driver of growth in the remainder of the year. |
Sluggish Growth and Measurement
For an economy that sunk 6.1% in 2009 and bounced back only 5.5% in 2010, growth numbers for Mexico for the first quarter of 2011 are not encouraging. There are two issues to discuss: first, the data is subject to revisions, in particular the seasonally adjusted number, which we expect will be revised upwards to 0.7-0.8% to yield annual growth in the neighbourhood of 3.0%. Second, the year-on-year (y/y) GDP growth rate reported (4.6%) is a closer approximation of the economic performance of Mexico in January-March 2011, since the fourth quarter of 2010 was particularly strong and the comparison to this quarter may hide the real pace of economic activity.
GDP growth during the first quarter was driven by a 0.9% quarter-on-quarter (q/q) expansion of the service sector while industry grew 0.7% q/q; partially offsetting these was the drop of primary activities (agriculture, fishing, livestock and forestry), which dropped 2.3%.
Within the industry, manufacturing was a leading sector, which in turn was driven by higher demand from the United States. As the US economy continued to move upwards, Mexican exporters/suppliers enjoyed higher demand that translated into increased output. Other sectors included in industry, such as utilities, also posted moderate/strong growth, while mining remained on the declining path—as oil output continued to shrink—and construction continued to stagnate.
In the service sector, strong growth was recorded in commerce, financial services and educational services, while healthcare, government and tourism-related activities posted negative growth in the quarterly comparison. The government has withdrawn, at least partially, the stimulus implemented in the aftermath of the crisis; tourism is suffering from increased violence. There is still not data regarding the demand side, but strong growth in commerce confirms that private consumption is strengthening as well. Fixed investment in machinery and equipment continues to expand but construction remains lethargic.
In April, exports increased 7% compared to April 2010, and seasonally adjusted data show a decline of 1.15% over March month-on-month (m/m); both major categories of exports of oil and manufactured goods posted negative growth rates of 5.65% and 0.47% respectively.
Outlook and Implications
At IHS Global Insight, we expect that the growth figure for the first quarter of 2011 will be revised upwards in the quarters to come, but still all pieces of the seasonally adjusted data portrait undoubtedly show a situation in which the pace of growth of Mexican economy has slowed in January-March. Yearly comparisons on non-seasonally adjusted data reaffirm the trends discussed above and give a clearer picture of what the full year will be.
The outlook for the Mexican economy is still positive as the economy of its major trading partner, the US, is set to grow 2.7%— a relatively robust rate from the Mexican perspective. Against the positive outlook, high unemployment in the US does imply that remittances from Mexican workers will not pick up in the near term; and increased violence is precluding from the growth of tourism and its related activities. On a positive note, data for the first quarter show robust growth of commercial and financial services, which is good news, and if maintained may become the driver of Mexico's growth, although this is not in our baseline scenario. The monthly index of economic activity for March, also published by INEGI, shows some signs of cooling down on the Mexican economy as it decreased 0.23% from February levels. Our latest forecast calls for Mexican GDP to grow 4.6% in 2011; this implies that in the next three quarters of the year, GDP will expand at an average 1.5% per quarter.