Mexico Economic Update
Mexico Economic Growth Surprises on the Upside in Third Quarter
Mexico’s economy grew at a faster pace in the third quarter than in the second. As a result, the consensus 2015 gross domestic product (GDP) growth forecast was revised to 2.4 percent in November from 2.3 percent in October. The GDP forecast for 2016 stands at 2.7 percent. More recent data suggest that growth continued into the fourth quarter. Exports, employment and industrial production increased, but retail sales fell in September after five months of growth. Inflation is at historic lows, and the peso held steady in November.
Third-Quarter Output Picks Up
Mexico’s GDP grew at a 3 percent annualized rate in the third quarter, compared with a 2.5 percent rate in the second (Chart 1). Service-related activities (including trade, transportation and business services) and goods-producing industries (including manufacturing, construction, utilities and mining) each rose 3.1 percent in the third quarter. Agricultural output expanded 9.7 percent.
Exports Edge Up in October
Exports rose 1.8 percent in October after growing 1 percent in September. However, three-month moving averages reveal a continued steep decline in oil exports and a slowing in total exports toward the end of the year (Chart 2). Oil exports were down 44 percent in the first 10 months of 2015 compared with the same period a year ago, but much of this decline is attributable to lower oil prices. The price of Mexican crude oil mix is down 60 percent since June 2014. Manufacturing exports were up 2 percent this year through October over the same period last year.
Industrial Production Keeps Expanding
Mexico’s industrial production (IP) grew 0.4 percent in September after expanding 0.2 percent in August. Three-month moving averages show sharply higher total IP, which includes construction, oil and gas extraction, and utilities. Manufacturing IP continues to grow faster than total production (Chart 3). Meanwhile, U.S. IP lost some momentum and fell 0.2 percent in October—its second consecutive decline.
Retail Sales Fall in September
Retail sales edged down 1.1 percent in September after growing for five consecutive months. However, the three-month moving average still shows continued improvement in domestic demand (Chart 4). Year over year, retail sales are up 5.2 percent. Consumer confidence improved in October and November.
Job Growth Slower in October
Formal-sector employment—jobs with government benefits and pensions—grew at an annualized rate of 2.6 percent in October after rising 3.6 percent in September (Chart 5). Year to date, employment is up an annualized 4 percent.
Peso Holds Steady
Mexico’s currency averaged 16.6 pesos per dollar in November, about the same as in October (Chart 6). However, the peso has lost 18 percent of its value against the dollar over the past year. The currency has been weak, partly in anticipation of the increase in U.S. interest rates and partly due to the impact of falling oil prices on Mexico’s government finances. Oil revenues account for about one-third of the federal budget.
Inflation Continues Below Official Target
Inflation fell to 2.2 percent in November, its lowest level in recent history and below the central bank’s long-term target of 3 percent (Chart 7). Prices excluding food and energy rose 2.3 percent. Mexico’s central bank tightened its policy rate for the first time since August 2008, honoring its promise of policy coordination with the Federal Reserve in an effort to prevent adverse effects on the peso that could push up inflation. The rate rose 25 basis points to 3.25 percent.
About the Author
Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas.