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Mexico's Output Growth Slows in the Fourth Quarter
February 8, 2019
Mexico’s economy grew an annualized 1.2 percent in fourth
quarter 2018 after expanding 3.4 percent in the third quarter. Gross domestic product (GDP) grew 2.1 percent in
2018 (fourth quarter/fourth quarter). The consensus
growth forecast for 2019, compiled by Banco de México,
was revised down from 1.9 percent in December to 1.8
percent in January.1
Other data are mixed. Exports, employment and retail sales
grew, while industrial production fell. The peso strengthened against the dollar, but inflation increased slightly.
GDP Growth Falls Below 10-Year Average
Mexico’s fourth-quarter GDP growth of 1.2 percent was
below its long-run average (Chart 1). Output from goodsproducing industries (manufacturing, construction, utilities
and mining) fell 4.3 percent, while service-related activities
(wholesale and retail trade, transportation and business
services) grew 3.2 percent. Agricultural output rose 7.8
percent.
Exports Tick Up in December
Total exports increased 1.7 percent in December after falling 1.5 percent in November. Manufactured-goods and oil
exports grew 1.1 percent and 1.8 percent, respectively, in
December. However, the three-month moving averages
continue showing declines (Chart 2). In 2018, total exports
were up 7.3 percent, with manufacturing exports growing
6.3 percent and oil exports surging 26 percent. It bears
noting that the rise in oil exports in 2018 stems largely
from higher oil prices earlier in the year, not an increase in
the volume of exports.
Industrial Production Drops in November
Mexico’s industrial production (IP) index, which includes
manufacturing, construction, oil and gas extraction, and
utilities, decreased 0.6 percent in November after falling
1.7 percent in October. The manufacturing index grew 1.0
percent in November after falling 2.5 percent in October. As
a result, the three-month moving averages ticked down for
both total production and manufacturing (Chart 3). Meanwhile, north of the border, U.S. IP ticked up 0.3 percent in
December following a 0.5 percent increase in November.
The correlation between Mexico’s IP and U.S. IP increased
considerably due to growth in intra-industry trade following moved sideways (Chart 4). Since December 2017, retail
the implementation of the 1994 North American Free Trade sales have risen 3.8 percent.
Agreement.
Employment Growth Improves in December
Retail Sales Pick Up in November
Formal sector employment—jobs with government benefits
Retail sales grew 0.4 percent in November after contracting and pensions—grew an annualized 2.1 percent in December, still below the 10-year average of 3.2 percent growth
1.0 percent in October. The three-month moving average
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Mexico Economic Update

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(Chart 5). Year over year, formal sector employment is up
3.4 percent. Total employment, representing 54 million
workers and including informal sector jobs, grew 2.2 percent
through the third quarter. The unemployment rate in December was 3.6 percent, slightly higher than last year’s average of 3.4 percent.
Peso Gains Little Ground in December
The Mexican currency averaged 20.1 pesos per dollar in December, up 0.7 percent from November (Chart 6). The peso
–dollar exchange rate is 4.6 percent below year-ago levels.
The Mexican currency has been under pressure due to increased uncertainty regarding U.S. trade policy and Mexico’s
domestic policy. In addition, the U.S. dollar has strengthened because of faster growth, higher interest rates and
emerging-market turmoil.
Foreign-Owned Government Debt Share Ticks Up
The share of peso-denominated Mexican government debt
held abroad ticked up to 31.1 percent in December. However, the three-month moving average has been on a downward trend since February 2017, when it reached 36 percent
(Chart 7). The extent of nonresident holdings of government
debt is an indicator of Mexico’s exposure to international
investors, whose holdings could quickly reverse if they perceive a change in market sentiment.
Inflation Inches Up in December
The consumer price index (CPI) increased 4.8 percent over
the prior 12 months in December, up slightly from 4.7 percent in November (Chart 8). CPI core inflation (excluding
food and energy) rose 3.7 percent in December. Mexico’s
central bank raised its benchmark interest rate by 25 basis
points in both November and December, pushing the rate to
8.25 percent. In the official communique, the central bank
said inflation risks have intensified, mainly due to uncertainty regarding the new federal administration’s policies.
—Jesus Cañas and Benjamin Meier
Note
1. Encuesta sobre las Expectativas de los Especialistas en
Economía del Sector Privado: Diciembre de 2018 (survey on
economic expectations compiled by Banco de México, December 2018), banxico.org.mx/publicaciones-y-prensa/
encuestas-sobre-las-expectativas-de-los-especialis/%
7B17D9B6D1-2FDA-D129-63E1-8D6AA77DE223%7D.pdf
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About the Authors
Cañas is a senior business economist, and Meier is a research assistant in the Research Department at the Federal
Reserve Bank of Dallas.

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