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Economic Activity Improves; Mexico’s Outlook Revised Up

Jesus Cañas and Chloe Smith

Mexico Update
Economic Activity Improves; Mexico’s Outlook Revised Up

November 17, 2020

Economic activity has been up since June, according to Mexico’s global economic activity index. As a result, Mexico’s gross domestic product (GDP) growth forecast for 2020, compiled by Banco de México, was revised up from -9.8 percent in September to -9.3 percent in October.[1]

The latest data available show industrial production, employment, exports and retail sales increased. The peso gained ground against the dollar in October, while inflation continued at a steady pace.

Economic Activity Rises

Mexico’s global economic activity index, the monthly proxy for GDP, increased 5.0 percent in August based on a three-month moving average (Chart 1). Service-related activities (including trade and transportation) were up 0.4 percent in August. Goods-producing industries (including manufacturing, construction and utilities) increased 3.3 percent. Agricultural output fell 5.9 percent in August.

Chart 1

Exports Continue to Recover

The three-month moving average of total exports grew 4.9 percent in September as oil exports increased 2.5 percent and manufacturing exports were up 5.4 percent (Chart 2). On a month-over-month basis, total exports grew 0.7 percent in September, and manufacturing exports increased 1.3 percent. This year through September, exports have fallen 15.7 percent compared with the same period in 2019.

Chart 2

Industrial Production Expands Further

The three-month moving average of Mexico’s industrial production (IP) index—which includes manufacturing, construction, oil and gas extraction, and utilities—increased 3.3 percent in September, and manufacturing IP was up 4.7 percent (Chart 3). On a month-over-month basis, IP was flat in September, while the manufacturing index increased 2.4 percent. North of the border, U.S. IP fell 0.7 percent in September after rising 0.5 percent in August, and the three-month average continued to increase. The correlation between IP in Mexico and the U.S. increased considerably with the rise of intra-industry trade as a result of the 1994 North American Free Trade Agreement, recently replaced by the United States–Mexico–Canada Agreement.

Chart 3

Retail Sales Turn Around

The index of real retail sales in Mexico increased 5.3 percent based on a three-month moving average through August (Chart 4). On a month-over-month basis, retail sales rose 2.5 percent in August after growing 5.9 percent in July. However, since December 2019, the retail sales index has declined 10.1 percent.

Chart 4

Payroll Expansion Continues

Formal sector employment—jobs with government benefits and pensions—rose an annualized 3.7 percent (59,600 jobs) in October, faster than September’s 1.8 percent increase (Chart 5). Year-over-year employment contracted 4.0 percent in October. The unemployment rate in September was 5.1 percent, up from 3.5 percent a year earlier.

Chart 5

Peso Gains Strength

The Mexican currency averaged 21.3 pesos per dollar in October—up 1.9 percent from September—and is up 14.1 percent since April (Chart 6). The peso has depreciated 14.0 percent against the dollar since December 2019. The Mexican peso has been under pressure due to increased uncertainty regarding the impact of COVID-19 on domestic and global growth.

Chart 6

Foreign-Owned Government Debt Share Continues to Fall

The share of peso‐denominated Mexican government debt held abroad fell to 21.3 percent in October. The three-month moving average declined to 22.0 percent (Chart 7). The extent of nonresident holdings of government debt is an indicator of Mexico’s exposure to international investors and is also a sign of confidence in the Mexican economy.

Chart 7

Inflation Remains Stable

Mexico’s consumer price index (CPI) increased 4.1 percent in October over the prior 12 months, up slightly from 4.0 percent in September (Chart 8). CPI core inflation (excluding food and energy) also rose 4.0 percent in October over the previous 12 months. Banco de México reduced the benchmark interest rate by 25 basis points to a four-year low of 4.25 percent on Sept. 24. In making its rate cut, Mexico’s central bank cited the weak growth outlook and financial market volatility stemming from uncertainty regarding the impact of COVID-19 on world economic activity.

Chart 8


  1. Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Noviembre de 2020, (communiqué on economic expectations, Banco de México, November 2020). The survey period was Oct. 22–29.
About the Authors

Cañas is a senior business economist, and Smith is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.

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