Mexico Economic Update
Mexico's Economy Picks Up the Pace
October 23, 2013 · Update in PDF
The monthly proxy for gross domestic product (GDP) increased in July, suggesting Mexico economic growth ticked up after three months of either stagnant or declining activity. In the most recent data, exports, industrial production and employment also grew. However, retail sales were subdued. The rate of inflation has continued to fall, and the peso depreciated against the dollar in September.
Mexico’s global economic activity index (IGAE), a monthly proxy for the nation’s GDP, grew 0.5 percent in July after stagnating in June (Chart 1). In July, service-related activities (including trade, transportation and government) expanded 0.6 percent. However, goods-producing industries (including manufacturing, construction, utilities and mining) fell 0.1 percent. Agricultural output grew 0.1 percent. Despite the recent pickup in economic activity, the 2013 GDP growth forecast has been revised down to 1.4 percent from 1.8 percent in August. In the first half, GDP contracted 1.4 percent at an annual rate from its fourth-quarter level.
Exports grew 2.2 percent in August and are up 0.2 percent in the first eight months of 2013 compared with the same period last year. Three-month moving averages show improvement in oil exports, while manufacturing shipments show some decline (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 and played a major role in Mexico’s recovery from the 2009 recession.
Industrial Production Recovering
Industrial production (IP) rose 0.5 percent month over month in August after growing 0.2 percent in July. Three-month moving averages show considerable improvement, particularly in manufacturing production (Chart 3). Across the border, U.S. IP increased 0.4 percent in August after posting a flat reading in July. 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 Fall
Retail sales fell 1.4 percent in August after rising 0.4 percent in July. The three-month moving average shows retail sales continue to be flat (Chart 4). Year over year, retail sales are down 2.3 percent. In 2012, retail sales fell 0.4 percent (December over December). Consumer confidence worsened in September after two consecutive months of improvement.
Job Growth Picks Up Again
Formal-sector employment—jobs with government benefits and pensions—expanded at an annualized rate of 2.2 percent in August, better than July’s growth of 1.9 percent but still below the average monthly rate of 2.6 percent for the year (Chart 5). Formal-sector employment grew at a 4.6 percent pace in 2012.
Peso Loses Ground Against Dollar
The peso depreciated 1.2 percent in September, when the exchange rate averaged 13.1 pesos per dollar, up from 12.9 in August (Chart 6). Relatively higher U.S. interest rates and concerns about the slowing of the Mexican economy may be pushing up the dollar relative to the peso.
Inflation Continues Downward Trend
Inflation fell to 3.4 percent year over year in September, down from 3.5 percent in August (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 3.75 percent in September over concerns that the economy was slowing. It was the second easing this year.
About the Author
Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas.