Mexico: Private consumption holds up in Q3, while external sector drags on growth
December 20, 2017
Expenditure-based data for the third quarter released by Mexico’s national Statistical Institute (INEGI) on 20 December confirmed the economy’s subdued performance amid mounting inflationary pressures and the temporary effects of the natural disasters that struck the country in the quarter. According to INEGI, GDP increased 1.5% in the third quarter over the same period in the previous year, a deceleration from the 1.9% rise logged in the second quarter. The release also showed that aggregate supply and demand rose 2.5% in Q3, slightly below the 2.7% expansion recorded in Q2.
In the domestic sector, private consumption continued to prove resilient to multiple headwinds, including high inflation and tightening credit conditions. Despite the dire panorama, a healthy labor market and solid remittance inflows supported private outlays through the quarter, with household spending decelerating only slightly, to 3.1% in Q3 from 3.2% in Q2. Government consumption, however, recorded its largest contraction since Q2 2013 in Q3 at a 1.0% decrease (Q2: +0.0% year-on-year) as a result of the government’s austerity drive. Similarly, fixed investment shrank for a third consecutive quarter in Q3 on the back of much lower public fixed investment and lingering uncertainty regarding NAFTA talks. Fixed capital expenditure contracted 0.8% from the same quarter of the previous year (Q2: -3.1% year-on-year).
The effects of hurricane- and earthquake-related disruptions were more visible in the external sector, offsetting the positive effects of strong global demand and robust growth in the U.S. manufacturing sector. Export growth swung from a 4.6% expansion in Q2 to a 0.4% decline in Q3, the sector’s worst performance since Q1 2013. Conversely, imports held up at a 5.4% increase from the previous year in Q3, slightly above the 5.3% rise recorded in Q2. A decrease in exports and resilient imports caused the external sector’s net contribution to growth to deteriorate from negative 0.2 percentage points in Q2 to a 2.1 percentage-point subtraction in Q3, the worst print since the height of the financial crisis.
The economy is expected to have only recovered somewhat in the fourth quarter as fixed investment remained relatively depressed on political uncertainty stemming from NAFTA renegotiation talks and July’s presidential elections. Looking into 2018, economic growth is expected to firm up on the back of gradually softening inflation, a more supportive fiscal stance ahead of the election and buoyant growth in neighboring U.S.
Author: David Ampudia, Economist