Mexico: Comprehensive Q4 GDP estimate shows economy grew less than previously reported
February 23, 2018
A more comprehensive set of data released by the National Statistics Institute (INEGI) on 23 February shows that the economy grew a meagre 1.5% on an annual basis in the final quarter of 2017. The result marked a downgrade of 0.3 percentage points from the first estimate and came in below the upwardly revised 1.6% expansion recorded in the third quarter (previously reported: +1.5% year-on-year). All in all, full-year growth came in at a four-year low of 2.0% in 2017, a tad below the 2.1% initially reported and below the 2.9% increase recorded in 2016.
Despite solid U.S. factory demand and supportive domestic operating conditions, manufacturing output decelerated notably in the fourth quarter, weighing on the industrial sector, which contracted for a third consecutive quarter (Q4: -1.0% year-on-year; Q3: -0.6% yoy). Transport equipment output held up to an extent at a 5.5% expansion, aided by solid growth in auto manufacturing but hampered by lower trailer and auto parts output. Elsewhere in the manufacturing sector, however, activity was notably softer from the previous quarter. Meanwhile, activity in the construction sector continued to fall as a result of weak public infrastructure outlays, while oil output plunged for another quarter. Activity in oil-extracting activities has not tallied an expansion since Q4 2012.
Conversely, the tertiary sector grew at a steady clip in the quarter, with domestic demand likely proving particularly resilient to heightened political noise, tighter monetary conditions and higher inflation. Wholesale trade activity growth accelerated from 4.0% in Q3 to 4.9% in Q4, the highest figure in over two years. Retail commerce activity grew 2.0% in Q4, a much better figure than the 0.2% rise recorded in Q3. Some fatigue in household spending, however, could be seen in growth in financial service activities, which decelerated for a second consecutive quarter in Q4. All told, growth in the tertiary sector was unchanged at Q3’s 2.4% in Q4. Meanwhile, agricultural sector activity rose a robust 4.2% in annual terms in Q4, doubling the 2.1% increase recorded in Q3.
Adjusted for seasonal effects, GDP rose a hefty 0.8% on a quarterly basis in Q4, which was below the 1.0% increase initially reported in January. Nonetheless, the figure contrasted the 0.2% decline recorded in the previous quarter.
The economy faces a daunting challenge this year, with still high inflation eroding households’ purchasing power in spite of a solid labor market and a hawkish Banxico further tightening monetary conditions. General elections will be held on 1 July, with polls showing left-of-center candidate Lopez Obrador as the front-runner, ahead of Meade of the incumbent PRI and Anaya of the PAN. Moreover, the hot electoral race will take place amid lingering concerns over the renegotiation of NAFTA, talks of which are ongoing with most negotiation chapters still open—a bleak scenario for a Mexican peso heavily exposed to shifts in U.S.-Mexico relations.
Mexico GDP Forecast
That said, strong global growth bodes well for the outlook of the Mexican economy, and growth is expected to rebound in the second half of the year as political uncertainties become clearer and inflationary pressures soften. Banxico expects the economy to grow between 2.0% and 3.0% in 2018 and between 2.2% and 3.2% in 2019. Our panel expects the economy to grow 2.2% in 2018, which is unchanged from last month’s forecast. GDP growth is projected to pick up to 2.3% in 2019.
Author: David Ampudia, Economist