Consumption and investment growth slowing.  Data for aggregate supply and demand for the fourth quarter confirm the previously reported trend of a slowdown in economic growth.  Total demand expanded 8.0% year-over-year, after double-digit growth in the previous three quarters of 2000.  The slowdown was balanced between consumption, which saw growth decelerating to 6.6% from 10.0% in the third quarter, and gross fixed investment, which experienced a slowdown from 11.1% in Q3 to 7.6% in the fourth quarter.  Panellists expect the slowdown in consumption and investment to continue this year with growth moderating significantly.

Spillover from U.S. knocks growth.  The trend of slowing economic growth quickened in January.  Total economic activity decelerated to 3.2% year-over-year growth in the first month this year.  While this was higher than the 2.7% growth registered in December, seasonally adjusted data indicate a slowdown from 0.4% growth in December to 0.2% in January.  A sectoral breakdown indicates more clearly the impact that the slowdown of the U.S. economy is having on Mexican growth: while services, which depend more on domestic factors, remained relatively unscathed with 5.1% growth, industrial production growth plummeted to 1.9% annual growth.  Even though part of the slowdown in industrial activity was prompted by weak mining performance, the 2.4% growth in manufacturing marks the slowest expansion rate since March 1999 (apart from the temporary 0.4% contraction in last December).  The maquiladora industry still managed to grow at an impressive 9.3% over the previous year.  However, this also represents the slowest rate since February 1999 and, in combination with continued weakening in the construction industry (January: -1.1% yoy), points towards for further deceleration in investment activity.  February trade data augur for an even more pronounced slowdown ahead.  After years of solid trade growth, February exports actually shrank compared to the same month last year (-4.4%) - the first time since July 1998 - and imports also dropped 2.4% - the first year-over-year contraction since January 1999.

Growth forecasts pared.  The unmistakable signs of a quick and marked impact of the US slump on the Mexican economy have prompted panellists to again pare their growth forecasts for this year.  Anecdotal evidence from U.S. corporate earnings reports suggests that the U.S. economy is headed for a more pronounced nosedive than expected earlier this year and analysts still struggle to assess the likely duration of the downturn.  According to this month’s Consensus, the slump in the Mexican economy should bottom out in the third quarter with growth slowing substantially.  However, growth is seen resuming accelerating in the last quarter this year and to pick up further in 2002.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Mexico.  For more details please click here.

For five-year forecasts, please click here.