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Mexico Economy Slows in Third Quarter
December 23, 2014
Mexico’s gross domestic product (GDP) expanded at
an annualized rate of 2 percent in the third quarter, a
deceleration from a revised 3.6 percent rate in the
second quarter. Recent data are consistent with continued, albeit slower, growth. Industrial production,
employment and exports grew in October, although
retail sales fell in September. Inflation ticked down,
while uncertainty generated by falling oil prices
pushed the peso–dollar exchange rate to levels not
seen since mid-2012. The peso lost ground against
the dollar for the fourth consecutive month in December.

Annualized growth rate (percent)
10

5

0

-5

-10

-15

-20

Output Growth Decelerates

2007

Mexico’s economy expanded 2 percent in the third
quarter on a quarter-over-quarter basis (Chart 1).
Service-related activities (including trade, transportation and business services) grew 2 percent, while
goods-producing industries (including manufacturing,
construction, utilities and mining) grew 1.7 percent.
Agricultural output expanded 10.5 percent in the
quarter. The consensus GDP growth forecast for 2014
was revised down from 2.3 percent in October to 2.2
percent in November. The GDP growth forecast for
2015 is 3.5 percent.

2008

2009

2010

2011

Exports grew 3.8 percent in October after falling 0.4
percent in September. Three-month moving averages
reveal a steep, persistent decline in oil exports, while
total exports continue to show improvement since the
beginning of the year (Chart 2). Year to date, total
exports have grown 3.8 percent, with manufacturing
exports growing 5.1 percent. Oil exports declined 11
percent during the first 10 months of 2014 due to
falling oil prices and declines in domestic production.
Mexico oil production is down 33 percent since peaking at 3.53 million barrels per day in October 2004.

2012

2013

2014

SOURCE: Instituto Nacional de Estadística y Geografía.

Chart 2
Total Export Growth Improving, but Oil Exports Fall Further
Index, January 2000 = 100*
350

300

Oil

250

200

Total

150

100

Exports Rise Despite Decline in Oil Trade

Federal Reserve Bank of Dallas

Chart 1
Gross Domestic Product Growth Decelerates

Manufacturing

50

*Seasonally adjusted, three-month moving average; real dollars.
SOURCE: Instituto Nacional de Estadística y Geografía.

Industrial Production Showing Improvement
Mexico’s industrial production (IP) grew 0.3 percent
month over month in October after coming in flat in
September. Three-month moving averages show a
broad pickup in total IP, which includes construction, oil
and gas extraction, and utilities. Both construction IP
and manufacturing IP continued to grow, with manufacturing outpacing total production (Chart 3). Meanwhile,
U.S. IP grew 1.3 percent in November after staying flat

Mexico Economic Update

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in October. Mexico’s industrial production typically
tracks U.S. IP, due in part to the U.S. automotive industry’s large presence in Mexico.
Retail Sales Tick Down in September

Chart 3
Industrial Production Keeps Growing
Index, January 2000 = 100*
130
125

Retail sales fell 0.7 percent in September after growing for three consecutive months over the summer.
The three-month moving average, however, still
shows improvement since the second quarter (Chart
4). Year over year, retail sales are up 4.3 percent.
Consumer confidence improved in November.

120

Manufacturing IP

Total

115
110
105

U.S. IP

100

Job Growth Moderates in November
Formal-sector employment—jobs with government
benefits and pensions—grew at an annualized rate of
3.9 percent in November, slower than the 2014 annual average growth of 4.2 percent but faster than the
2013 annual growth of 2.9 percent (Chart 5).

95

90
*Seasonally adjusted, three-month moving average.
SOURCES: Instituto Nacional de Estadística y Geografía; Federal Reserve Board.

Chart 4
Retail Sales on Rise Since Second Quarter 2014

Peso Continues Depreciating
The peso fell 4.4 percent against the U.S. dollar during the first 15 days of December, when the exchange
rate averaged 14.4 pesos per dollar, up from 13.6 pesos per dollar in November (Chart 6). The peso has
been unstable as a result of falling oil prices and its
potential adverse effects on Mexico government finances. Oil revenues account for about one-third of
the federal government budget.

Index, January 2000 = 100*

150

140

130

120

110

Inflation Falls
Inflation ticked down to 4.2 percent year over year in
November (Chart 7). Prices excluding food and energy
rose 3.4 percent, slightly above the central bank’s
long-term inflation target of 3 percent. Banco de
México has made no further moves since it lowered

100

90
*Seasonally adjusted, three-month moving average; real pesos.
SOURCE: Instituto Nacional de Estadística y Geografía.

Chart 5
Job Growth Slows in November

Chart 6
Peso Depreciates Further Against Dollar

Percent*
10

Peso/dollar average
16
15

5

14
13

0

12
-5

11

10

-10

9
-15
2007

2008

2009

2010

*Month/month; seasonally adjusted, annualized rate.
SOURCE: Instituto Mexicano del Seguro Social.

Federal Reserve Bank of Dallas

2011

2012

2013

2014

8
SOURCE: Banco de México.

Mexico Economic Update

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Chart 7
Inflation Ticks Down in November
Year/year percent change
12

10

8

6

4

2

Long-term target

0
SOURCE: Instituto Nacional de Estadística y Geografía.
.

the reference rate 50 basis points to 3 percent in June
to help stimulate economic growth. Policymakers continue to believe that inflation expectations are wellanchored. However, central bank policymakers have
noted that they may raise interest rates if the peso’s
weakness pushes up inflation.
—Jesus Cañas
……………………………………………………………………………………...
About the Author
Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas.

Federal Reserve Bank of Dallas

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