Mexico: Revised GDP data confirms sluggish Q2
A second estimate for economic activity in the second quarter confirmed the challenges which faced the economy in the run-up to the 1 July general election, with growth in the quarter below market expectations. At face value, the revised 2.6% unadjusted year-on-year expansion in the second quarter (previously reported: +2.7% year-on-year) was considerably stronger than the 1.4% reading at the outset of the year. However, it still landed shy of the 2.9% print expected by analysts. On a year-on-year basis, growth was reported across the board. A more complete picture of the economy came, however, from the seasonally-adjusted quarter-on-quarter figures, which were revised to a less marginal 0.2% contraction from the first quarter (previously reported: -0.1% quarter-on-quarter s.a.; Q1: +1.0% qoq s.a.) as the agricultural and industrial sectors posted losses. Analysts had expected a modest 0.2% quarter-on-quarter gain in the second quarter.
Modest revisions to the unadjusted annual figures showed the services sector growing at a solid 3.3% pace (previously reported: +3.4% yoy; Q1: +2.1% yoy) despite upside inflation risks in the quarter—now a familiar trend. A breakdown showed that all but 3 of the 15 included subsectors accelerated from the first quarter, with particularly upbeat gains recorded in the trade, transport and media sectors. Meanwhile, the industrial sector rebounded on an annual basis, expanding for the first time in more than a year (Q2: +1.3% yoy; Q1: -0.8% yoy) as activity in the manufacturing and construction subsectors sped up. On the other hand, the agricultural sector posted more moderate growth in the second quarter (Q2: +1.8% yoy; Q1: +5.4% yoy).
On a quarter-on-quarter basis, the economy was hampered by contractions in the agricultural (Q2: -2.1% qoq s.a.) and industrial (Q2: -0.3% qoq s.a.) sectors. That said, shrinking industrial output more accurately reflected an impressive first quarter rather than a weak second quarter. Moreover, trade disputes with the United States do not appear to have weighed too heavily on the industrial sector’s quarter-on-quarter figures. Meanwhile, gains in the services sector were revised down (Q2: +0.2% qoq s.a.; previously reported: +0.3% qoq s.a.); nonetheless, they remained a bright spot.
Overall, the report confirmed a weak second quarter. Nevertheless, a breakdown by expenditure (due for release on 20 September) is expected to show that domestic demand remained resilient despite the extenuating circumstances of an election year. Meanwhile, the external sector and trade-related activity are expected to have taken a hit—so much can also be inferred from tepid trade and manufacturing readings in recent months. A number of analysts predict a turnaround in the third quarter, however.
As noted by Steven Palacio, an economist at JPMorgan:
“With real wage income rising, remittances in good shape and consumer confidence recently surging, the table seems set for services linked to domestic demand to hold up strong. At the same time, the prospect of faster growth in U.S. manufacturing and imports should boost domestic factory output and related services. Hence, despite the challenging momentum going into Q3, we still think activity is poised to rebound.”