Skip to main content
Mexico Economic Update

Mexico's output growth revised up; outlook improves further

Jesus Cañas and Chloe Smith
Mexico Update
Mexico’s output growth revised up; outlook improves further

June 23, 2021

Mexico’s gross domestic product (GDP) was revised up to an annualized 3.1 percent in first quarter 2021. In May, the consensus GDP growth forecast for 2021 (fourth quarter/fourth quarter), compiled by Banco de México, increased from 3.1 percent to 3.5 percent.[1]

Mexico still faces headwinds from COVID-19. Though new cases continue to fall, vaccination progress has been slow, and a lack of testing could make a new outbreak hard to identify in a timely manner.

The latest data available show employment, industrial production and retail sales grew, while exports fell in April. The peso gained ground against the dollar in May, and inflation increased further.

First-quarter output growth revised up

Mexico’s first-quarter GDP grew an annualized 3.1 percent, up from its previous estimate of 1.6 percent (Chart 1). Output from goods-producing industries (manufacturing, construction, utilities and mining) increased 1.9 percent, and service-related activities (wholesale and retail trade, transportation and business services) rose 3.6 percent. Agricultural output grew 2.7 percent.

Chart 1

Exports trend down even as oil exports improve

The three-month moving average of total exports fell 0.2 percent in April as oil exports increased 4.4 percent, but the dominant manufacturing category dipped 0.3 percent (Chart 2). On a month-over-month basis, total exports decreased 0.5 percent in April, and manufacturing exports increased 0.3 percent. Through April, exports are up 13.7 percent compared with the same period in 2020.

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 0.5 percent in March, and manufacturing IP was up 0.1 percent (Chart 3). On a month-over-month basis, IP was up 0.7 percent in March, and the manufacturing index grew 3.0 percent. North of the border, U.S. IP increased 0.5 percent in April after rising 2.2 percent in March, and the three-month average was relatively flat. 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 continue to recover

The index of real retail sales in Mexico increased 2.0 percent based on a three-month moving average through March (Chart 4). On a month-over-month basis, retail sales grew 3.6 percent in March after rising 2.5 percent in February.

Chart 4

Employment grows in April

Formal sector employment—jobs with government benefits and pensions—rose an annualized 6.6 percent (106,200 jobs) in April, greater than March’s 5.3 percent increase (Chart 5). Year-over-year employment grew 0.7 percent in April. Total employment, representing 53 million workers and including informal sector jobs, declined 4.3 percent year over year in first quarter 2021—far below its 10-year average of 1.1 percent. The unemployment rate in April was 4.7 percent, flat from a year earlier.

Chart 5

Peso gains ground against the dollar

The Mexican currency averaged 20.0 pesos per dollar in May, up 0.3 percent from April. However, it is still 5.6 percent down from prepandemic levels in February 2020 (Chart 6). 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 decreases further

The share of peso‐denominated Mexican government debt held abroad fell to 20.1 percent in April, the lowest share since December of 2010. The three-month moving average decreased to 20.6 percent (Chart 7). The extent of nonresident holdings of government debt is an indicator of Mexico’s exposure to international investors and also a sign of confidence in the Mexican economy.

Chart 7

Inflation increases further

Mexico’s consumer price index (CPI) increased 6.1 percent in April over the prior 12 months, up from 4.7 percent in March (Chart 8). CPI core inflation (excluding food and energy) rose 4.1 percent in April over the previous 12 months. Banco de México held the benchmark interest rate at 4.0 percent on May 13 for the second meeting in a row after cutting it by 25 basis points in February. The central bank cited inflation risks and the need to evaluate the impact of past easing as the main reasons for holding the rate steady.

Chart 8


  1. GDP growth forecast based on the average year-over-year quarterly growth improved from 4.8 to 5.2 percent. Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Mayo de 2021 (communiqué on economic expectations, Banco de México, May 2021). The survey period was May 24–28.
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.