Mexico: Second Q3 GDP estimate corroborates economic downturn due to earthquakes and hurricanes
November 24, 2017
The economy expanded 1.5% in annual terms in the third quarter, according to a more comprehensive set of data released by the National Statistics Institute (INEGI) on 24 November. The result, which was downgraded 0.1 percentage points from the first estimate, marked a deceleration from the revised 1.9% expansion recorded in the second quarter (previously reported: 1.8% year-on-year) and highlighted the temporary impact of the natural disasters in the third quarter. Adjusted for seasonal effects, GDP contracted 0.3% in quarter-on-quarter terms in Q3, a stark contrast to the 0.3% rise recorded in the previous quarter and slightly above the 0.2% decline previously estimated. Q3’s quarterly figure was the weakest in over four years.
A complete set of GDP data by industry confirmed that the natural disasters that hit Mexico in September took a heavy, albeit temporary, toll on the economy. In particular, activity in the industrial sector remained depressed in the quarter, with oil output severely hindered as a result of hurricane- and earthquake-related disruptions. Similarly, weak public investment, lingering uncertainty with regard to NAFTA negotiations and next year’s presidential elections drove construction activities to continue to fall in Q3. The sole bright spot was the manufacturing sector, which expanded solidly on strong U.S. factory demand and upbeat domestic operating conditions. All in all, activity in the secondary sector was down 0.7% in year-on-year terms, which followed a 1.4% contraction in the previous quarter. k
The tertiary sector also showed some signs of fatigue because of multi-year high inflation and decelerating credit growth. Although the impact of the earthquakes likely weighed on education and tourism services in September, stagnant activity in retail stores suggests that consumers are increasingly feeling pinched by acute price pressures. Service sector activities expanded 2.4% in annual terms in Q3, the slowest pace since Q2 2014 and well below the 3.1% increase recorded in Q2. Growth in agricultural activity also slowed down from the previous month, increasing 0.9% in Q3 following a 1.4% rise in Q2.
The string of downbeat indicators released in recent weeks has been significant enough for Banxico to downgrade its 2017 GDP forecast in its November inflation report. The Bank now expects GDP to increase between 1.8% and 2.3% (previously estimated: 2.0–2.5%). Indeed, household consumption growth appears to be moderating on unfavorable inflation dynamics and despite a tight labor market, while investment levels are likely to remain depressed on multi-faceted political and commercial concerns. Although growth was slow in Q3, it is likely to bounce back in Q4 on reconstruction efforts.
Mexico GDP Forecast
The Banxico expects the economy to grow between 2.0% and 3.0% in 2018 and between 2.2% and 3.2% in 2019. Our panel expects the economy to grow 2.3% in 2018, which is unchanged from last month’s forecast. GDP growth is projected to pick up to 2.4% in 2019.
Author: David Ampudia, Economist