Mexico: Comprehensive Q1 GDP data confirms strong start to 2018 despite adverse calendar effect
May 23, 2018
A more comprehensive dataset released by the National Statistics Institute (INEGI) on 23 May revealed that the economy grew 1.3% on an annual basis in the first quarter. Despite a marginal 0.1 percentage-point upgrade from the first estimate released at the end of April, the result was down from the 1.5% reading in the fourth quarter of last year and again came in below market expectations. That said, the timing of the Easter holiday this year—in March rather than in April as in last year—left fewer working days in the quarter and stunted the unadjusted figures; adjusting for the adverse calendar effect, annual growth in the first quarter was a robust 2.3%, a shade lower than initially reported (+2.4% year-on-year).
The industrial sector held back growth in the first quarter, posting a fourth consecutive quarter of losses. Despite moderating from a quarter earlier in unadjusted terms (Q1: -0.8% yoy; Q4 2017: -1.0% yoy), industrial output still suffered from steep contractions in the extractive sectors. Meanwhile, manufacturing output posted a rare contraction despite solid U.S. factory demand and supportive domestic operating conditions. On the other hand, construction activity ticked up from the same quarter a year ago—likely boosted by stronger election-year public spending—contrasting three consecutive quarters in contraction.
In line with last year’s easing growth in the sector, and likely weighed down by tighter financing conditions and heightened political noise, activity in the services sector expanded at a modest 2.0% from a year earlier (Q4 2017: +2.4% yoy) in unadjusted terms. Milder activity was recorded across most sub-sectors, including wholesale trade, and financial and professional services—hinting at some fatigue in household spending. Furthermore, educational and recreational services contracted from a year earlier, while healthcare services and retail trade posted faster growth in the quarter. Meanwhile, agricultural output jumped in the quarter, expanding a robust 5.4% from a year earlier (Q4 2017: +4.3% yoy).
Quarter-on-quarter figures paint a more complete picture of the economy, with growth jumping to 1.1% on a seasonally-adjusted basis from a quarter earlier—handily beating market estimates and a sharp increase from the 0.8% gain in the fourth quarter of last year. On a sequential basis, all sectors of the economy grew, with gains led by the services sector (+1.1% quarter-on-quarter) despite a marginal downward revision. Notably, the industrial sector notched a solid performance following several quarters of sluggishness, while both the industrial (+0.9% qoq) and agricultural (+0.9% qoq) sectors saw upward revisions to their initial growth estimates.
Overall, the economy began the year at a solid pace but faces significant challenges in the months ahead. Inflation remains high and continues to eat into households’ purchasing power despite strengthening labor market dynamics and Banxico’s hawkish stance. Moreover, several downside risks are weighing on the outlook, including potential fallout from both the 1 July general elections and the ongoing renegotiation of the North American Free Trade Agreement—both of which could wreak havoc on the peso.
Author: Christopher Thomas, Economist