Mexico: Revised data show stronger economic growth in Q1
May 22, 2017
The Mexican economy performed even better than previously estimated in the first quarter of 2017. GDP rose 2.8% from the same quarter of the previous year in Q1, according to a more comprehensive set of data released by the national statistical institute (INEGI) on 22 May. The figure was upwardly revised from the originally reported 2.7% increase and came in well above market expectations of a 2.5% expansion. Likewise, GDP data adjusted for seasonal effects was revised upwards in Q1, from an initial estimate of 0.6% quarter-on-quarter growth to a 0.7% increase, mirroring Q4’s reading.
According to INEGI, the upward revision was prompted by better dynamics in the industrial sector than initially reported. The secondary sector managed to expand 0.5% in annual terms (previously reported: +0.2% year-on-year) on the back of a marked pick-up in manufacturing growth and despite a slump in oil output. After recording a mediocre performance last year, the key manufacturing sector seems to have gained traction in Q1, which could have positive spillovers into manufacturing-related exporting services. Conversely, the plunge in mineral and quarrying activities showcased the decline in domestic oil production.
Elsewhere in the economy, the expansion in the first quarter was led by the services sector, whose growth was not revised at 3.7% (Q4: +3.4% yoy). Activity among domestic-oriented service providers proved extremely resilient despite mounting inflationary pressures and downbeat consumer sentiment, but analysts expect it to ease in the months to come as higher inflation dents real disposable income. Finally, revised data show that agriculture gathered steam as growth in the sector rose from a 5.3% increase in Q4 to a 6.6% expansion in Q1.
The second estimate for economic activity in Q1 reaffirms the view that the Trump shock may have been overstated. Strong growth in the services sector—particularly among domestic-oriented firms—suggests that Mexican households had more wind in their sails than first thought. However, with inflation gaining speed despite the Central Bank tightening its monetary stance, our panel sees GDP decelerating markedly in Q2 as households start to feel the pinch. Nonetheless, a likely robust performance from the manufacturing sector—sequential data is encouraging, with solid auto sales in April—and improved external demand will shore up growth this quarter to a certain extent.
Author: David Ampudia, Economist