Mexico: Mexico’s economy confirms cool-off through last year-end
A comprehensive estimate for economic growth in the fourth quarter of last year fell shy of analysts’ expectations and confirmed a year-end slowdown on the heels of an upbeat midyear. By most measures, the fourth-quarter reading was downbeat. In annual terms, unadjusted output grew at 1.7% (Q3 2018: +2.5% year-on-year)—down a notch from the initial estimate and a couple below analysts’ expectations. Meanwhile, seasonally-adjusted quarter-on-quarter figures were also revised down (Q3: +0.2% quarter-on-quarter s.a.; previously reported: +0.3% qoq s.a.) amid a slump in industrial-sector output.
Unadjusted annual figures revealed a disappointing outturn for the industrial sector, which contracted 0.9% year-on-year (Q3: +1.1% year-on-year) on slumping construction activity, as well as free-falling mining output. All-important manufacturing gains were tepid in the quarter, still underpinned by a strong stateside economy. Services-sector activity, meanwhile, decelerated but remained fairly robust (Q4: +2.7% yoy; Q3: +3.1% yoy). Low inflation and solid labor-market gains appeared to help, although it was likely negatively impacted by the late-year political turmoil that upended economic sentiment. On the other hand, agricultural-sector activity jumped in the quarter (Q4: +3.0% yoy; Q3: +2.0% yoy).
Overall, the estimate highlighted risks for the economy heading into the new year. On the upside, household spending is expected to remain upbeat thanks to the continued expansion of credit. Conversely, downside risks continue to mount for the industrial sector as a shakier global economy and the threat of continued policy uncertainty bruise fixed investment.
Taking into account the fourth-quarter release and looking ahead to the current quarter, Steven Palacio, an economist at JPMorgan, noted:
“The final [fourth-quarter] GDP print […] brought little surprise. […] News was discouraging. […] Still, we continue to believe consumption-led services should remain relatively strong, as falling inflation, a strong labor market, and the ensuing rise in real wages keep consumer spending solid. The weak trend in manufacturing, however, should weigh on output both directly and indirectly. The PMI remained very weak in January—and likely also in February. Thus, despite expecting consumption-fueled services to hold up relatively well, we think activity will continue to muddle through at very weak rates and forecast current-quarter growth at a weak 0.8% ar, with slight downside risks.”