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Mexico Economy Hangs Tough, with Solid but Slower Growth
February 8, 2017
Mexico’s economy posted solid growth in the fourth
quarter. Gross domestic product (GDP) growth dipped
from 4 percent annualized in the third quarter to 2.4
percent in the fourth quarter, according to the government’s advance estimate. Recent data on employment,
retail sales and exports showed continued expansion,
but industrial production was flat. Inflation held steady
in December, while the peso depreciated further. The
consensus 2017 GDP growth forecast is 1.6 percent.
Output Growth Decelerates
Mexico’s GDP grew 2.4 percent annualized in the fourth
quarter, although at a slower pace than the third, with
higher activity mostly driven by growth in the service
sector (Chart 1). Service-related activities (including
trade, transportation and business services) rose 2.8
percent, while goods-producing industries (including
manufacturing, construction, utilities and mining) were
flat. Agricultural output grew 1.6 percent in the fourth
quarter.
Exports Increase in December
Exports rose 3.8 percent in December after growing 4.5
percent in November. Three-month moving averages of
total and manufacturing exports show consistent growth
since mid-2016 (Chart 2). For the year as a whole, total
exports and manufacturing exports were 3.1 and 2.5
percent below 2015 levels, respectively. Oil exports
turned around earlier in 2016 after a long decline, but
the reversal was driven by rising oil prices, not higher
volume. Despite the turnaround, 2016 oil exports were
still 21 percent below 2015 totals.
Manufacturing Production Expands Further
Mexico’s industrial production (IP) was flat in November
after growing 0.2 percent in October; however, manufacturing production ticked up and has been rising since
early 2016. U.S. IP grew 0.9 percent in December after
falling 0.7 percent in November. Based on the threemonth moving average, Mexico’s manufacturing IP has
accelerated while total IP shows signs of deceleration (Chart 3). Total IP, which includes manufacturing,
construction, oil and gas extraction, and utilities, has
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Mexico Economic Update

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been growing more slowly than manufacturing IP since
2014.
Retail Sales Continue Growing
Retail sales expanded 1 percent in November after
growing 1.7 percent in October. November sales were
up an impressive 10.6 percent year over year. The
smoothed data (three-month moving average) clearly
show a sharp acceleration in sales revenue throughout
2016 (Chart 4). Despite this, the consumer confidence
measure worsened in November and December.

Job Growth Remains Solid
Formal-sector employment—jobs with government benefits and pensions—grew at an annualized rate of 2.6
percent in December (Chart 5). Job growth slowed to
3.6 percent in the fourth quarter, down from 5.1 percent in the third. Nonetheless, employment growth in
2016 was 4.1 percent (December over December)—
faster than the 3.8 percent growth in 2015.
Peso Loses Ground Against the Dollar in December
The Mexican currency averaged 21 pesos per dollar in
December, a 2 percent drop from November (Chart 6).
The peso has lost 17 percent of its value against the
dollar on a year-over-year basis. The Mexican currency
has been weak as a result of the anticipation of further
increases in U.S. interest rates and policy and economic
uncertainty generated following the U.S. presidential
election.
Foreign-Owned Government Debt Stable
Despite recent economic uncertainty and market volatility, mainly reflected in the peso/dollar exchange rate,
the share of peso‐denominated government debt held
abroad has remained relatively stable around 35 percent (Chart 7). The extent of nonresident holdings of
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government debt reflects Mexico’s exposure to international investors, whose holdings could reverse if
they perceive a sudden change in market sentiment
toward Mexico.
Inflation Holds Steady in December, but Above
Target
Inflation was 3.3 percent in December, the same as in
November, coming in above Banco de México’s longterm inflation target of 3 percent (Chart 8). Prices
excluding food and energy rose 3.4 percent over the
last 12 months. Mexico’s central bank raised its
benchmark interest rate by 50 basis points to 5.75 in
December, the sixth time the central bank raised
rates between December 2015 and December 2016.
Banco de México Governor Agustín Carstens has
made it clear that the central bank will not hesitate to
use interest rate increases and currency interventions
as needed to strengthen the peso and stabilize prices.
—Jesus Cañas
………………………………………………………………………………………

About the Author
Cañas is a senior business economist in the Research
Department at the Federal Reserve Bank of Dallas.

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