Mexico - Economic Briefing September 2002

Economy Rebounds But US Economy Raises Concerns

The Mexican economy has pulled out of one of its mildest and shortest recession in decades. However, an increasingly gloomy outlook for the US economy threatens to undermine the recovery and in the unlikely case that the double-dip recession should materialise in the United States, the Mexican economy would certainly follow suit.

Economic growth slows in June but remains above expectations
In June, economic activity, as measured by the monthly indicator for economic activity (IGAE, Indicador Global de la Actividad Económica), rose 0.7% in real terms compared with the same month last year. The reading followed on 1.7% annual growth in May but was still ahead of more pessimistic market expectations. On a sectoral basis, agriculture experienced a decline of 1.1% compared to the same period last year; industry dropped 0.7% and the service sector advanced 1.7%. According to seasonally adjusted data, economic activity added 0.19% over the preceding month.

Economy rebounded in second quarter …
In the second quarter as a whole, the economy expanded 2.1% in real terms over the same period last year. This represents a marked swing compared to the 2.0% contraction in the first quarter this year, which had marked the trough in the current business cycle. Nevertheless, seasonal factors exaggerate the magnitude of the upswing, as the Easter holidays were in the second quarter last year but in the first this year. Consequently, the second quarter 2002 registered four more working days than the same period last year. According to seasonally adjusted data, therefore Mexican GDP increased by a more moderate 1.16% over the first quarter this year. This still constitutes a recovery as it marks the first positive reading since the end of 2000.

… as the industrial sector pulls clear from recession …
The agricultural sector grew at an annual rate of 1.1%. The expansion was the result of higher volume output of numerous commodities. More notable was the performance of industry, where output rose 2.5% over the same period last year. Thus, industrial activity experienced the strongest upward swing of all sectors compared to the first quarter, when the sector suffered an annual decline of 4.4%. The manufacturing industry led the cyclical swing, reverting from a 5.6% recession in Q1 to a 2.1% expansion in Q2. The second quarter represented the first quarter of positive year-on-year growth since the manufacturing industry slipped into recession in early 2001, in the wake of diminished demand from the United States. Construction, which had experienced a recession of the same duration as the manufacturing industry, also returned into positive territory with 5.0% growth (Q1: -1.5%). Electricity, gas and water added 4.4% after 2.0% growth in the first quarter. In the industrial sector, only mining slumped, contracting 0.3% compared to the second quarter last year (Q1: -1.3).

… and services rebound
The services sector grew 2.2%, which also represents a considerable recovery compared to the 1.1% contraction in the first quarter. Wholesale and retail activities, restaurants and hotels increased a moderate 0.4% over the second quarter last year and thus experienced the strongest rebound within services, as the first quarter reported an annual 6.7% decline. Transport, storage and communications added 2.9% (Q1 -1.5%); financial services and real estate augmented 4.7% (Q1: +4.6%) and governmental services increased by 1.8% (Q1: 0.6%).

Outlook unchanged
Consensus Forecast panellists are optimistic that the recovery experienced in the second quarter will continue at an even faster pace in the second half of the year. In the third quarter, the economy should grow at a healthy pace, picking up further in the final quarter of the year. The outlook for the full year remains unchanged over last month. The gradual pick-up in speed of the recovery towards the end of the year should carry over into next year, when the economy should grow strongly.

 

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

Continue >>