Mexico Economic Update
Mexico's Economy Grows in Third Quarter
December 18, 2013 · Update in PDF
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.
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.
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 above the average monthly growth rate of 2.7 percent for the year (Chart 5). Formal-sector employment grew 4.6 percent in 2012.
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.
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.
About the Author
Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas.
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