Mexico: Private consumption continues to drive growth in Q4, but slower investment and exports drag on it
March 18, 2016
Mexico’s economic growth lost steam in the last quarter of 2015 due to slower exports and investment. According to INEGI’s data for aggregate supply and demand, GDP increased 2.5% annually in the fourth quarter, which was down the 2.8% expansion registered in the previous quarter. In 2015 as a whole, Mexico’s GDP grew 2.5%, which came in above the 2.3% increase observed in 2014.
More relevant than Q4’s headline figure were the details regarding the demand-side composition of GDP. Private consumption continued to be the chief driver of growth. Household spending increased 3.6% year-on-year in Q4 (Q3: +3.1% yoy) and marked the fastest increase since Q4 2012. Job creation, a notable increase in remittances from Mexican workers abroad, low inflation and higher wages were the key elements that supported solid growth in private consumption in 2015. Government consumption eked out a 1.8% increase in Q4, which, despite cuts to government spending toward the end of year, marked an improvement compared to the 1.5% rise tallied in Q3. That said, growth in fixed investment dropped notably in Q4. Gross fixed capital formation expanded a mere 0.6% in Q4, which came in well below the 4.1% increase observed in Q3. Q4’s figure also represented the softest expansion since Q3 2014. The deceleration reflected considerable headwinds in the form of heightened volatility in financial markets, a sharp depreciation of the Mexican peso and cuts in public investment due to budget cuts.
The external sector remained supportive to growth in the final quarter of 2015, but the contribution from net exports to the general economy was the weakest in the year. The contribution from net exports to overall economic growth fell from 1.2 percentage points in Q3 to 1.0 percentage point in Q4, as exports of goods and services decelerated sharply. Growth in Mexico’s overseas sales nearly halved to 5.1% in Q4 from 10.0% in Q3. This notable deceleration mainly resulted from slower global demand, lower commodities prices and a deceleration in the U.S. manufacturing sector at the end of 2015. Meanwhile, a larger drop in imports growth was also recorded in the fourth quarter. They fell from a 6.2% increase in Q3 to a 2.2% expansion in Q4.
Looking at seasonally-adjusted quarter-on-quarter data, Mexico’s GDP expanded 0.5% in Q4 (previously reported: +0.6% qoq), which represented a slower increase compared to the 0.8% expansion tallied in Q3.
Author: Ricardo Aceves, Senior Economist