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Mexico’s Economy Grows in Third Quarter December 18, 2013 Mexico’s economy expanded in the third quarter after contracting in the second quarter. Annualized growth through the third quarter was 0.7 percent higher relative to fourth quarter 2012. Recent data show mixed signals. Exports and employment grew; however, industrial production and retail sales fell. The rate of inflation is now at its lowest level since January, and the peso depreciated against the dollar in November. Output Grows On a quarter-over-quarter basis, Mexico’s economy grew 3.4 percent in the third quarter after falling at a revised rate of 2.2 percent during the second quarter (Chart 1). Service-related activities (including trade, transportation and business services) grew 5.3 percent in the third quarter, while goods-producing industries (including manufacturing, construction, utilities and mining) grew 3.6 percent. Agricultural output contracted 2 percent. The latest central bank survey of economic analysts puts 2013 GDP growth at 1.3 percent and forecasts 2014 growth of 3.3 percent. Exports Inching Up Exports grew 0.7 percent in October and are up 0.9 percent in the first nine months of 2013 compared with the same period last year. Three-month moving averages continue to show slight improvement in total and manufacturing exports while oil shipments ticked down (Chart 2). Exports are posting their second consecutive year of little to no growth, having risen a meager 3.8 percent in 2012. Exports grew at double-digit rates in 2010 and 2011. Manufacturing Output Improving Industrial production (IP) fell 1.2 percent month over month in September after growing in the prior four months. Three-month moving averages show significant improvement in manufacturing output since June while total IP continues trending down due to lethargic construction (Chart 3). Meanwhile, U.S. IP fell 0.1 percent in October after growing 0.6 percent in September. Mexico’s industrial production typically tracks U.S. industrial production, due in part to the U.S. automotive industry’s large presence in Mexico. Federal Reserve Bank of Dallas Chart 1 Mexico's Gross Domestic Product Grows in Third Quarter Annualized growth rate (percent) 10 5 0 -5 -10 -15 -20 2007 2008 2009 2010 2011 2012 2013 SOURCE: Instituto Nacional de Estadística y Geografía. Chart 2 Total Exports Hold Steady as Oil Exports Tick Down Index, January 2000 = 100* 350 300 Oil 250 200 Total 150 100 Manufacturing 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *Seasonally adjusted, three-month moving average; real dollars. SOURCE: Banco de México. Retail Sales Take a Dip Retail sales fell 0.4 percent in September after falling 1.5 percent in August. The three-month moving average shows retail sales slowing significantly since June (Chart 4). Year over year, retail sales are down 3.8 percent. In 2012, retail sales fell 0.4 percent (December over December). Consumer confidence has worsened in the last three months. Job Growth Continues Formal-sector employment—jobs with government benefits and pensions—grew at an annualized rate of 3.4 percent in October, better than September’s growth of 2.5 percent and Mexico Economic Update 1 above the average monthly growth rate of 2.7 percent for the year (Chart 5). Formal-sector employment grew 4.6 percent in 2012. Chart 3 Manufacturing Speeds Up Index, January 2000 = 100* 125 120 Total 115 Manufacturing IP 110 105 100 Peso Depreciates Slightly The peso depreciated 0.6 percent in November when the exchange rate averaged 13.1 pesos per dollar, up from 13 pesos per dollar in October (Chart 6). Higher U.S. interest rates may be helping push up the dollar relative to the peso. 150 Inflation Falling Inflation fell to 3.4 percent year over year in October, its lowest level since January (Chart 7). Prices excluding food and energy rose only 2.5 percent, below the central bank’s long-term inflation target of 3 percent. The central bank lowered its policy rate to 3.5 percent in October over concerns that the economy continues to slow. This was the third monetary policy easing this year. 140 —Jesus Cañas 130 …………………………………………………………………………………………. U.S. IP 95 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *Seasonally adjusted, three-month moving average. SOURCES: Instituto Nacional de Estadística y Geografía; Federal Reserve Board. Chart 4 Retail Sales Falling Index, January 2000 = 100* About the Author 120 Cañas is business economist in the Research Department at the Federal Reserve Bank of Dallas. 110 100 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *Seasonally adjusted, three-month moving average; real pesos. SOURCE: Instituto Nacional de Estadística y Geografía. Chart 7 Inflation Getting Close to Long-Run Target Year/year percent change 12 Chart 5 Job Growth Stronger in Second Half of Year 10 Percent* 10 8 5 6 0 4 -5 2 -10 Long-term target 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SOURCE: Instituto Nacional de Estadística y Geografía. -15 2007 2008 2009 2010 2011 2012 2013 *Month/month; seasonally adjusted, annualized rate. SOURCE: Instituto Mexicano del Seguro Social. Chart 6 Peso Depreciates Further in November Peso/dollar average 16 15 14 13 12 11 10 9 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOURCE: Banco de México. Federal Reserve Bank of Dallas Mexico Economic Update 2
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