Mexico: Year-on-year GDP growth slows on calendar effect in Q1; quarter-on-quarter data unexpectedly upbeat
April 30, 2018
Despite seasonal effects obscuring the full picture of the economy, a resilient external sector and stronger consumption dynamics appear to have fueled solid economic growth at the outset of the year. On a non-seasonally-adjusted basis, growth in the first quarter slowed to 1.2% from a year ago, below analysts’ expectations of a 1.6% rise and down from the already-sluggish 1.5% expansion in the fourth quarter of last year. That said, the timing of the Easter holiday this year—in March rather than in April as last year—left fewer working days in the quarter and stunted the unadjusted figures; adjusting for the adverse calendar effect, annual growth in the quarter was robust.
The unadjusted figures showed that softer growth in the first quarter largely reflected slower activity in the services sector and a further contraction in industrial output. Growth in the services sector eased to 2.1% on an annual basis, down from the 2.4% uptick recorded at the end of last year. Despite services output slowing in the quarter, separate data suggests that export-related services were buoyed by strong external demand, while domestic services were likely buttressed by recent gains in household spending. Meanwhile, continued losses in the industrial sector (Q1: -1.1% year-on-year; Q4 2017: -1.0% yoy) dragged on headline growth for the fourth consecutive quarter, despite otherwise healthy manufacturing output. Although stronger election-year public spending likely boosted construction activity, overall industrial output was almost certainly hampered by continued sluggishness across mining sub-sectors. On the other hand, a further surge in agricultural output sent gains in the sector climbing in the first quarter (Q1: +5.3% yoy; Q4 2017: +4.2% yoy).
Quarter-on-quarter figures paint a more complete picture of the economy, with growth jumping to 1.1% from a quarter earlier—handily beating market estimates of a 0.7% expansion and a sharp increase from the 0.8% gain in the fourth quarter of last year. On a quarterly basis, all sectors of the economy grew impressively, with gains led by the services sector. Moreover, the industrial sector notched a solid performance following several quarters of sluggishness.
Overall, the economy began the year at a solid pace, and upbeat momentum across sectors at the outset of the year suggests improved full-year growth prospects. That said, several downside risks are weighing on the outlook, including high inflation, a weak currency and potential fallout from both the 1 July general elections and the ongoing renegotiation of the North American Free Trade Agreement.
Author: Christopher Thomas, Economist