Mexico: Private consumption continues to underpin economic growth, net exports are a temporary drag
June 20, 2016
Mexico’s economic growth gained momentum in the first quarter of 2016 due to solid private consumption. According to INEGI’s data for aggregate demand and supply, GDP increased 2.6% in the first quarter over the same quarter last year. The reading was an acceleration over the 2.4% expansion registered in the final quarter of 2015 and was in line with market expectations.
Private consumption was again the key domestic demand component behind Q1’s solid increase. Household spending increased a healthy 3.3% annually in Q1 (Q4: +3.5% year-on-year), which contributed 2.2 percentage points to overall economic growth. The positive contribution from private consumption to the headline figure reflects that consumer fundamentals remain strong: growing employment, credit expanding at a robust pace and rising real wages and remittances. Investment, on the other hand, maintained the lackluster pace of growth observed in Q4, growing 0.6% in Q1. This mainly reflected that solid growth in private investment offset a deterioration in public investment due to low oil prices. In the same line, government consumption deteriorated in the first quarter. In fact, it decreased for the first time in nine years and the decline was the fastest since Q4 2003 (Q1: -0.4% yoy; Q4: +1.9% yoy).
Exports continued to moderate in Q1, rising 1.4% year-on-year (Q4: +5.1% yoy) and marking the slowest pace of expansion since Q1 2013. The deceleration reflected considerable headwinds in the form slower global demand, in particular in the U.S., and low commodities prices. Meanwhile, imports moderated, but remained more resilient than exports (Q1: +2.1% yoy; Q4: +2.2% yoy), yielding a net external drag of 0.2 percentage points on overall GDP growth in Q1.
Looking at seasonally-adjusted quarter-on-quarter data, Mexico’s GDP expanded 0.8% in Q1, which represented a faster increase compared to the 0.6% expansion tallied in Q4 2015.
Author: Ricardo Aceves, Senior Economist