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Mexico Outlook Deteriorates Despite Faster Growth in Fourth Quarter
March 19, 2015
Mexico’s economy expanded 2.1 percent in 2014, according to official tallies, which measure annual average
growth. Based on the four-quarter change, gross domestic
product (GDP) growth came in at 2.6 percent last year, up
from 1 percent in 2013. The data also suggest GDP grew at
a faster rate in the fourth quarter than in the third. Despite
this improvement, more recent indicators suggest slowing
growth. While employment rose, industrial production, retail sales and exports fell. Inflation declined, while the peso
continued depreciating against the dollar and reached levels not seen since the 2009 recession.
Year-End Output Picks Up

Annualized growth rate (percent)
10

5

0

-5

-10

-15

Mexico’s economy grew 2.7 percent in the fourth quarter,
compared with a revised 2.1 percent rate in the third
(Chart 1). Service-related activities (including trade, transportation and business services) advanced 3.5 percent,
while goods-producing industries (including manufacturing,
construction, utilities and mining) expanded 2.5 percent.
Agricultural output fell 8.4 percent in the quarter. Despite
the pickup in overall activity, the consensus forecast for
2015 GDP growth was revised down from 3.3 percent in
January to 3.1 percent in February.
Exports Drop in January

-20
2007

2008

2009

2010

2011

2012

2013

2014

SOURCE: Instituto Nacional de Estadística y Geografía.

Chart 2
Decline in Total Exports Driven by Falling Oil Shipments
Index, January 2000 = 100*
350

300

Oil

250

Exports fell 3 percent in January after inching up 0.4 percent in December. Three-month moving averages reveal a
steep, persistent decline in oil exports, while total exports
show weakening since December (Chart 2). In 2014, total
exports grew 3.1 percent, with manufacturing exports rising 5.6 percent. Oil exports fell 14.4 percent due to declines in oil production and, more recently, to lower oil
prices. Mexico oil production is down about 33 percent
since peaking at 3.5 million barrels per day in October
2004. Mexico crude oil prices have declined 59 percent
since late summer.
Industrial Production Stalls in January
Mexico’s industrial production (IP) fell 0.4 percent month
over month in January following a 0.3 percent decline in
December. Three-month moving averages show stagnation
in IP after it posted steady growth in 2014. The fall in total
IP, which also includes construction, oil and gas extraction,
and utilities, was broad based (Chart 3). Meanwhile, U.S.
IP grew 0.1 percent in February after falling 0.4 percent in

Federal Reserve Bank of Dallas

Chart 1
Mexico's GDP Growth Improves in Fourth Quarter 2014

200

Total

150

100

Manufacturing

50

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

January. Mexico’s industrial production typically tracks U.S. IP,
due in part to the U.S. automotive industry’s large presence in
Mexico.
Year-End Retail Sales Disappoint
Retail sales fell 0.8 percent in December after growing 0.7 percent in November. The three-month moving average shows retail
sales losing momentum toward the end of 2014 (Chart 4). The
December-over-December measure was more positive, with retail sales up 2 percent, compared with 0.8 percent annual aver-

Mexico Economic Update

1

age growth in the prior three years. Consumer confidence improved in February.

Chart 3
Industrial Production Shows Signs of Cooling
Index, January 2000 = 100*
130

Job Growth Remains Strong in 2015

125

Manufacturing IP

120

Formal sector employment—jobs with government benefits
and pensions—grew at an annualized rate of 3.8 percent in
February, compared with a robust 4.9 percent in January. Annual employment growth (December over December) was 4.3
percent in 2014, faster than 2013’s 2.9 percent (Chart 5).

Total

115
110
105

U.S. IP

Peso Continues Losing Ground

100

150

The peso fell 1.5 percent against the dollar in February, when
the exchange rate averaged 14.9 pesos per dollar, up from
14.6 pesos in January (Chart 6). The peso has lost 11 percent
against the dollar over the past year. The peso has been unstable as a result of the tapering of Federal Reserve asset purchases in the U.S. and the expected impact of falling oil prices
on Mexico’s government finances. Oil revenues account for
about one-third of the federal government budget.

140

Inflation Reaches Central Bank Target

95
90
*Seasonally adjusted, three-month moving average.
SOURCES: Instituto Nacional de Estadística y Geografía; Federal Reserve Board.

Chart 4
Retail Sales Edge Down
Index, January 2000 = 100*

Inflation ticked down to 3 percent in February after plummeting to 3.1 percent year over year in January (Chart 7). Prices
excluding food and energy rose 2.4 percent, below the central
bank’s long-term inflation target of 3 percent. Banco de México has kept policy rates on hold since June, 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. However, policymakers have noted that they may raise interest rates if the
peso’s weakness pushes up inflation.

130
120
110
100
90
*Seasonally adjusted, three-month moving average; real pesos.
SOURCE: Instituto Nacional de Estadística y Geografía.

Chart 5
Job Growth Continues into 2015

—Jesus Cañas

Percent*
10

…………………………………………………………………………………………………

5

About the Author

0

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

-5

-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 Depreciates to Levels Not Seen Since 2009 Recession
Peso/dollar average

Chart 7
Inflation Drops to Long-Term Target in February
Year/year percent change
12

16
15
14

10

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