Mexico: Private consumption drives growth in Q1

In the first quarter, GDP increased 2.5% over the same quarter last year. The result represented a mild deceleration compared to the 2.6% expansion observed in Q4 2014 but came in a notch above the 2.4% rise the markets had expected.

Domestic demand continued to grow in Q1, although at a more moderate pace than in Q4. The expansion in total consumption strengthened in Q1 (Q4: +2.6% year-on-year; Q1: +3.2% yoy) due to an acceleration in both private consumption and government spending. However, growth in gross fixed investment fell from 5.8% in Q4 to 5.4% in Q1.

On the external side of the economy, exports of goods and services increased 12.1% annually in Q1, accelerating at its fastest pace in four years. The print came in above the already strong 10.3% expansion tallied in Q4. Conversely, imports grew 6.6% yoy, which moderated over the 8.1% increase in Q4. That resulted in a 1.7 percentage-point contribution to overall economic growth in Q1 (Q4: 0.8 percentage-point contribution), which has been the strongest contribution since Q4 2009.

On a sequential basis, GDP increased 0.4% adjusted for seasonal patterns in Q1, which came in slightly below the 0.7% rise registered in Q4.

In May, Mexico’s Central Bank (Banxico) revised Mexico’s growth forecasts and now expects the economy to grow between 2.0% and 3.0% in 2015 (previous estimate: between 2.5% and 3.5%). For 2016, the Bank also lowered its projections and now sees the economy growing between 2.5% and 3.5% (previous estimate: between 2.9% and 3.9%). LatinFocus Consensus Forecast panelists’ projection is in line with the Bank’s assessment. They see the economy increasing 3.0% in 2014, which is down 0.2 percentage points from last month’s forecast. For 2015, the panel expects growth to pick up to 3.5%.