Mexico: Revised data show stronger economic growth in Q4
February 22, 2017
Mexico’s economic activity strengthened more than previously estimated in the final quarter of 2016. GDP increased 2.4% from the same quarter of the previous year in Q4, according to a more comprehensive set of data released by the national statistical institute (INEGI) on 22 February. The result was upwardly revised from an initial estimate that GDP had it grown 2.2% and it beat market expectations that saw the economy growing at a 2.2% year-on-year pace. Mexico’s economy grew 2.3% in 2016 as a whole, which decelerated from a 2.6% increase in 2015. GDP data adjusted for seasonal effects was also revised upwards in Q4, from a previous 0.6% quarter-on-quarter increase to a 0.7% expansion. (Q3: +1.1% quarter-on-quarter).
Looking at the details, the revised data show that an improvement in industry and solid growth in services were the main drivers behind Q4’s acceleration. Previously, INEGI showed in the preliminary estimate that agriculture and services had been the main drivers behind Q4’s result. In the second estimate, growth in the industrial sector was flat and was revised from a previously reported 0.2% contraction in Q4. The secondary sector was more resilient in Q4, since it recovered part of the ground lost in Q3, when it contracted 0.8%. The improvement in industry stemmed from healthier growth in manufacturing and construction. Conversely, mining and quarrying continued to deteriorate, reflecting mainly lower oil production. Services continued showing a healthy performance in the fourth quarter, supported by strong domestic demand: growth was revised to a 3.4% increase from an initial estimate of 3.2% in Q4, maintaining the same pace as in Q3. It was buttressed mainly by faster growth in commerce, transport and tourism. Meanwhile, revised data now show that agriculture decelerated in Q4, but growth continued to be robust (Q4: +6.4% yoy; Q3: +6.8 yoy).
The Trump shock on the real economy has not been felt yet, but survey-based data related to business and consumer confidence and the PMIs suggest that the effects are starting to be felt in economic sentiment among companies and households. This could start having near-term effects in the form of weaker household consumption and reduced fixed investment. Economic activity is expected to soften this year, but the key question is, by how much? Although it is foreseeable that Mexico’s is likely to have a soft landing thanks to the momentum seen in services and an ongoing pick-up in external demand, this momentum could be short-lived given the high degree of investment uncertainty related to lack of clarity on trade policies in the U.S.
Author: Ricardo Aceves, Senior Economist