Mexico: Less dynamism in the external sector and weak government spending drag on growth
September 18, 2015
Mexico’s GDP lost momentum in the second quarter due to slower government spending and lower exports. GDP increased 2.2% annually in Q2, which was down from the 2.6% expansion registered in Q1.
Looking at the components of domestic demand, total consumption slowed in the second quarter as a result of weaker government consumption. Government spending began to feel impact of the austerity measures that the administration of President Peña Nieto had implemented and grew 2.7% year-on-year in Q2, which marked a slowdown from the 3.2% rise in Q1. Although the pace of private consumption did moderate, it was still solid in Q2 at a 3.0% increase; this was slightly below the 3.2% expansion seen in Q1. Meanwhile, gross fixed investment accelerated from a 5.3% increase in Q1 to a 5.5% expansion in Q2.
The contribution from the external sector to overall economic growth fell slightly in Q2 compared to the previous period. Exports of goods and services increased 8.9% in the second quarter, which marked a deceleration compared to the notable 12.0% expansion tallied in Q1. On the other side of the balance, imports grew 5.5% in Q2, which was slightly below the 6.0% rise tallied in Q1. As a result, the contribution from net exports to overall growth fell from 1.7 percentage points in Q1 to 1.2 percentage points in Q2.
Sequential data continued to suggest that economic growth in Mexico is still healthy. GDP increased a seasonally-adjusted 0.5% in Q2 over the previous quarter, which was slightly above the 0.4% registered in Q1.
Author: Ricardo Aceves, Senior Economist