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Mexico

Economic Update

October 2012

Summary
Mexico’s economy appears to have slowed slightly in recent months. The Global Economic Activity Index (IGAE)
suggests growth slowed in July, and retail sales fell. Exports and industrial production declined in August.
Employment grew in September, and the peso continued appreciating. Inflation remains well above target.

Global Economic Activity Index

The pace of economic growth moderated in
July as IGAE, a monthly proxy for Mexico gross
domestic product, grew 0.7 percent, down
from 0.9 percent in June. Service-related activities (including trade, transportation, services
and government) expanded 0.4 percent.
Goods-producing industries, including manufacturing, construction, utilities and mining, grew
0.5 percent.

(A monthly proxy for Mexico gross domestic product)
Index, January 2000 = 100

140
130
120
110
100
90
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Exports fell 0.9 percent in August after
growing 1.4 percent in July. Oil exports
grew 29.8 percent, while manufacturing
exports dropped 8.3 percent in August.
Total exports increased by just 4.4 percent
during the first eight months of the year, a
substantially slower pace than the 16.9 percent growth seen over the same period in
2011. Oil exports have fallen 6.2 percent,
and manufacturing exports have grown 5.8
percent during the first eight months of the
year.

Mexico Exports
Index, January 2000 = 100

350
Oil

300

Total
250

Manufacturing

200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mexico Industrial Production
Index, January 2000 = 100

125
120

Total
Manufacturing

115

U.S. industrial production

110
105

100
95
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Industrial production (IP) fell 0.7 percent
month over month in August after growing
0.5 percent in July. U.S. IP fell 1.4 percent in
August and grew 0.6 percent in July. Mexico’s
IP typically tracks U.S. IP, due in part to the
U.S. automotive industry’s large presence in
Mexico. However, since the end of the recession, Mexican IP has grown much faster than
U.S. IP, which has yet to reach its prerecession peak.

Mexico Retail Sales
Index, January 2000 = 100

150

Retail sales contracted 1.4 percent in July after
growing 1.8 percent in June. Year over year, retail sales grew 3 percent. Consumer confidence
fell 1.5 percent in September after falling 0.9
percent in August.

140
130

120
110
100
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mexico Formal Employment
Formal employment—jobs with government
protections and pensions— expanded at an annualized rate of 4 percent in September (month
over month) after growing 4.1 percent in August.
Employment grew at a 4.8 percent quarter-overquarter annualized rate in the third quarter, up
from 4.6 percent growth during the second quarter, but still down from 5.3 percent growth during
the first three months of the year. Since
December, Mexico has added over 547,000
formal-sector jobs.

Annual growth rate (percent)

10

5

0

-5

-10

-15
2007

2008

2009

2010

2011

2012

Peso/Dollar Exchange Rate
Peso/dollar average

16
15
14
13
12

11

Sept: 13.0

10

The peso has strengthened 7.7 percent
against the dollar since the end of June. The
exchange rate averaged 13 pesos per dollar
during September, down from an average of
13.9 in June. The peso-dollar exchange rate
continues to be driven by external events such
as the European debt crisis and the possibility
of another global economic slowdown.

9
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mexico Consumer Price Index
Inflation increased in September for the fifth consecutive month. Prices rose 4.8 percent year over
year, the fastest pace in 30 months. Agricultural
product prices, which rose 16.1 percent in September due to a severe drought and bird flu outbreak
that impacted egg prices, underlie the recent spike
in inflation. Without food and energy, prices increased 3.6 percent. Despite the resurgent price
pressures, Banco de México continues to hold the
benchmark interest rate at 4.5 percent where it
has been since July 2009.

Year-over-year percent change

12
10
8
6
4
2

Long-term target

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

NOTES: All data are seasonally adjusted except exchange rate. Exports and retail sales are in real terms.
SOURCES: IGAE, industrial production, consumer price index and retail sales: Instituto Nacional de Estadística y Geografía; exports, exchange rate: Banco de
México; formal employment: Instituto Mexicano del Seguro Social; U.S. industrial production: Federal Reserve Board.
Questions can be addressed to Jesus Cañas at jesus.canas@dal.frb.org. Mexico Economic Update is released one to two weeks preceding regularly scheduled
Federal Open Market Committee meetings.