Mexico GDP Q4 2017

Mexico

Mexico: High inflation dents household spending in Q4, political noise weighs on investment

March 21, 2018

Expenditure-based GDP data for the fourth quarter confirmed that the economy’s performance was anemic against a backdrop of subdued real wage growth and political uncertainty stemming from both NAFTA talks and the run up to the July 2018 general election. According to the National Institute of Statistics (INEGI), GDP rose a tepid 1.5% on an annual basis in Q4, a mild deceleration over the 1.6% expansion recorded in Q3 and the weakest print in four years. Aggregate supply and demand rose 3.0% in annual terms in Q4, a moderate acceleration over the 2.6% increase recorded in the previous quarter.

The domestic economy lost some steam in the fourth quarter, with dynamics in both private spending and fixed investment growth deteriorating from the previous quarter amid multiple headwinds. Annual household spending growth eased to 2.5% in Q4 from a 3.1% increase in Q3, the lowest figure since Q2 2015. Private discretionary spending was hampered by peaking inflation and rising borrowing costs, which eroded households’ disposable income despite a tight labor market and healthy remittance inflows. Government consumption contracted yet again in annual terms in Q4, shrinking 0.2% after a 1.1% decrease in Q3.

Meanwhile, fixed investment continued to be a significant drag in Q4, with business capital outlays contracting substantially amid heightened political noise. Conversely, investment in public works, which had dampened the economy’s performance in recent years amid the government’s fiscal consolidation drive, posted its smallest contraction in a year as public infrastructure investment unexpectedly expanded for the first time in over four years. Nonetheless, overall fixed investment was still down 2.4% in the fourth quarter, which followed a 0.6% contraction in the third quarter.

After hitting rock bottom in the third quarter, the external sector performed marginally better in the fourth quarter. Export growth swung from an earthquake- and hurricane-induced 0.4% contraction in Q3 to a relatively weak 2.5% expansion in Q4. Although still subdued, overseas shipments benefited from healthy global trade and robust factory output in the United States, while a weaker peso likely enhanced Mexico’s competitiveness. Imports, however, accelerated in unison, expanding 7.1% in the fourth quarter after a 5.5% increase in the previous quarter. As a result of import growth outpacing that of exports, the external sector subtracted 1.6 percentage points from overall growth in the fourth quarter, which followed a 2.1 percentage-point deduction in the third quarter.

The economy is expected to regain traction this year as the country clears some of the hurdles impeding stronger growth. These are mainly centered in the political arena, and include general elections on 1 July and ongoing talks to modernize NAFTA. Similarly, household spending should speed up as inflationary pressures moderate and strong job creation persists, which should trickle down into higher salaries and more available income. Nonetheless, Mexico is far from being out of the woods, and an unfavorable resolution on any of the political fronts currently open could lead to a severe weakening of the Mexican peso and many investment decisions being postponed, which would greatly hurt the country’s economic prospects.

Mexico Inflation Forecast


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:, Economist

Sample Report

Looking for forecasts related to GDP in Mexico? Download a sample report now.

Download

Mexico GDP Chart


Mexico GDP Q4 2017 1

Note: Year-on-year changes of GDP in %.
Source: Mexico National Statistics Institute (INEGI)


Mexico Economic News

  • Mexico: Consumer confidence hits decade-high following AMLO’s win

    August 3, 2018

    Consumer sentiment jumped in July on the heels of the 1 July general election, with the seasonally-adjusted consumer confidence index published by INEGI hitting a decade-high 101.7 points, up from a revised 88.6 points in June (previously reported: 88.0 points).

    Read more

  • Mexico: Banxico holds rates in August

    August 2, 2018

    At its 2 August monetary policy meeting, Banxico’s five-member board voted unanimously to hold the target rate at 7.75% after previously hiking rates ahead of the 1 July general election, a move broadly in line with market expectations.

    Read more

  • Mexico: Remittance inflows accelerate in June

    August 1, 2018

    Remittances totaled USD 3.1 billion in June (May: USD 3.2 billion), a robust 23.1% increase from the same month last year, accelerating from the revised 17.1% rise registered in May (previously reported: +19.8% year-on-year).

    Read more

  • Mexico: Growth disappoints in Q2 amid election-year challenges

    July 31, 2018

    A preliminary estimate for economic activity in the second quarter confirmed the challenges facing the economy in the run-up to the 1 July general election, with growth in the quarter coming up short against market expectations.

    Read more

  • Mexico: Trade deficit widens in June

    July 27, 2018

    Merchandise trade recorded a USD 0.9 billion deficit in June (May: USD 1.6 billion deficit), widening markedly from the USD 0.0 billion trade balance registered in June 2017.

    Read more

More news

Search form