Mexico: Fresh GDP estimate confirms economy's resilient performance
August 22, 2017
The economy expanded 1.8% in annual terms in the second quarter, according to a more comprehensive set of data released by the National Statistical Institute (INEGI) on 22 August. The figure, which was unchanged from the first estimate and in line with market expectations, marked a deceleration from Q1’s stronger-than-expected 2.8% increase but showcased resilient economic momentum in the Mexican economy in spite of a negative calendar effect in April related to the timing of the Easter holiday. Adjusted for seasonal effects, GDP expanded 0.6% in quarter-on-quarter terms in Q2, only marginally below the 0.7% increase recorded in the previous quarter.
The second quarter marked another strong quarter for services, which continued to spearhead overall growth. The tertiary sector grew 3.2% in annual terms, which was unchanged from the first estimate but signified a deceleration from the 3.7% increase recorded in the previous quarter. The strength of the sector, which was evident despite multi-year-high inflation and incipient signs of moderating consumption and stagnant investment growth, reflected robust performances from some of its heavy hitters, including retail activity and transportation.
Conversely, growth in the industrial sector nosedived in Q2 on the back of a downswing in construction-related activity and persistent weakness in mineral and quarrying output. The sole bright spot was once again the all-important manufacturing sector, which decelerated from Q1’s outstanding performance but still managed to increase 2.0% in year-on-year terms on account of solid export volumes to the U.S. All in all, activity in the industrial sector in the second quarter decreased 1.1% over the same quarter of the previous year, a contrast to the 0.5% expansion registered in the first quarter. The agricultural sector also disappointed in the second quarter, decelerating markedly from the 6.4% rise seen in the first quarter to 0.7%.
Looking ahead, H2 growth is expected to remain relatively solid as the upcycle in global trade boosts demand for products manufactured in Mexico. In turn, this will provide much-needed support to export-oriented services, while domestic-oriented services will benefit from healthy remittances inflows and a tight labor market, offsetting multi-year-high inflation. Nonetheless, growth will ease from H1 as a result of modest capex spending from both the private and public sector, while the threat of a disorderly renegotiation of NAFTA still looms and threatens to derail the economy’s resilient performance.
Author: David Ampudia, Economist