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Mexico Economy Slows in First Quarter June 22, 2015 Mexico’s economy grew at an annualized rate of 1.6 percent in the first quarter, down from 2.7 percent in fourth quarter 2014. More recent data suggest that growth has picked up. Exports, employment and retail sales are all up, while industrial production fell. Inflation has declined further, and the peso’s depreciation has paused. Modest Output Growth Chart 1 Mexico's Gross Domestic Product Growth Decelerates in First Quarter Annualized growth rate (percent) 10 5 0 -5 Mexico’s economy grew at an annualized 1.6 percent rate in the first quarter, compared with a revised fourth-quarter growth rate of 2.7 percent (Chart 1). Service-related activities (including trade, transportation and business services) grew 1.9 percent in the first quarter, while goods-producing industries (including manufacturing, construction, utilities and mining) fell 0.7 percent. Agricultural output expanded 12.6 percent. The consensus 2015 growth forecast was revised down to 2.7 percent in June from 2.9 percent in April. -10 -15 -20 2007 2011 2012 2013 2014 2015 350 Exports rose 1.3 percent in April after stagnating in March. Three-month moving averages reveal a continued steep decline in oil exports, while total exports finally ticked up after falling during the first three months of the year (Chart 2). Oil exports are down 47 percent in the first four months of 2015 compared with the same period a year ago. Much of this decline is accounted for by lower oil prices; the price of the Mexican mix is down 50 percent since June 2014. Manufacturing exports increased 5.9 percent from January through April. 250 Federal Reserve Bank of Dallas 2010 Index, January 2000 = 100* 300 Mexico’s industrial production (IP) fell 0.1 percent in April after growing 0.1 percent in March. Three-month moving averages show flattening in total IP, which includes construction, oil and gas extraction, and utilities. In contrast, manufacturing IP rebounded and continues growing faster than total production (Chart 3). Meanwhile, U.S. IP fell 0.3 percent in April—its fifth 2009 Chart 2 Total Exports Tick Up Exports Edge Up in April Industrial Production Falls in April 2008 SOURCE: Instituto Nacional de Estadística y Geografía. Oil 200 Total 150 100 Manufacturing 50 *Seasonally adjusted, three-month moving average; real dollars. SOURCE: Instituto Nacional de Estadística y Geografía. consecutive decline. Mexico’s manufacturing industrial production typically tracks U.S. IP, due in part to the U.S. automotive industry’s large presence in Mexico. Retail Sales Keep Improving Retail sales rose for the third consecutive month in March, increasing 0.2 percent after growing 0.5 percent in February. The three-month moving average shows continued improvement since November (Chart 4). Year over year, retail sales are up 5.5 percent. Despite the pickup in retail spend- Mexico Economic Update 1 Chart 3 Manufacturing Production Picks Up ing, consumer confidence worsened in April. Index, January 2000 = 100* 130 Jobs Grow Faster in April 125 Formal-sector employment—jobs with government benefits and pensions—grew at an annualized rate of 4.4 percent in April, slightly faster than the 2014 annual job growth rate of 4.3 percent (Chart 5). Year to date, employment is up an annualized 4.3 percent from December. Manufacturing IP 120 Total 115 110 105 U.S. IP 100 Peso Holds Steady 95 The peso averaged 15.3 pesos per dollar in May, about the same as in April (Chart 6). However, the peso has lost 15 percent of its value against the dollar over the past year. The Mexican currency has been unstable partly as a result of the expectation of an increase in U.S. interest rates and the impact of falling oil prices on Mexico’s government finances. Oil revenues account for about one -third of the federal government budget. 90 *Seasonally adjusted, three-month moving average. SOURCES: Instituto Nacional de Estadística y Geografía; Federal Reserve Board. Chart 4 Retail Sales Expand Further Index, January 2000 = 100* 150 140 130 Inflation Falls Below Official Target 120 Inflation fell to 2.9 percent in May, its lowest level in recent history and below the central bank’s long-term inflation target of 3 percent (Chart 7). Prices excluding food and energy rose 2.3 percent. Banco de México has kept policy rates on hold since June 2014, when it lowered the reference rate by 50 basis points to 3 percent to help stimulate economic growth. Central bank policymakers believe that inflation expectations are well-anchored, but have noted that they may raise interest rates when the Federal Reserve does to prevent any adverse effects on the peso, which could push up inflation. 110 100 90 *Seasonally adjusted, three-month moving average; real pesos. SOURCE: Instituto Nacional de Estadística y Geografía. Chart 5 Job Growth Remains Robust Percent* 10 5 —Jesus Cañas ………………………………………………………………………………………… 0 About the Author -5 Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas. -10 -15 '07 '08 '09 '10 '11 '12 '13 '14 '15 *Month/month; seasonally adjusted, annualized rate. SOURCE: Instituto Mexicano del Seguro Social. Chart 6 Peso Holds Steady in May Peso/dollar average 16 15 Chart 7 Inflation Falls Below Banco de México's Long-Term Target Year/year percent change 12 10 14 8 13 12 11 6 4 10 2 9 8 SOURCE: Banco de México. Federal Reserve Bank of Dallas Banco de México long-term target 0 SOURCE: Instituto Nacional de Estadística y Geografía. . Mexico Economic Update 2
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