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The outlook for the Mexican economy continues to
worsen. Despite a favourable inflationary environment and interest rates at
historic lows, the economy is developing along a sluggish path. Moreover,
the U.S. manufacturing sector - the single most important determinant for
the Mexican economy – continues to shed jobs, suggesting further downward
adjustment in Mexican production facilities. |
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Gross domestic product growth accelerates
Supply and demand data published shortly after last month’s Consensus
Forecast, confirmed the 2.3% annual gross domestic product (GDP) expansion
released earlier. The first quarter reading marked an improvement compared
to the 1.9% growth registered in the fourth quarter of 2002. It should be
noted, however, that the annual data are inflated by seasonal factors and
that the economy actually contracted in the first quarter, according to
seasonally adjusted data (details see June 2003 edition).
Consumption drives economy in first quarter but investment remains
sluggish
The improvement in the annual growth rate was mainly due to the domestic
side of the economy, whereas the external sector continued to contribute
only marginally, owing to the lack of impetus from the U.S. economy. On
the domestic side, consumption constituted the main driver to the
improvement. Total consumption increased 3.3% over the same period last
year, following on the sluggish 0.8% growth in the fourth quarter.
Improvements in both private consumption (Q1: +3.6% year-on-year, Q4:
+1.2% yoy) and government consumption (Q1: +1.1% yoy, Q4: -1.3% yoy)
bolstered aggregate consumption. A moderate increase in real incomes
boosted the positive development in private consumption and higher public
income in the wake of favourable oil prices provided the government with
increased resources to raise public spending. A more resilient recovery in
consumption, however, would require an increase in employment, which
remained absent in the first quarter.
Investment also improved over the fourth quarter but remains lacklustre.
Gross fixed investment added 0.6% over the same period last year,
following on zero growth in the fourth quarter. The improvement was mainly
due to higher construction activity, whereas investment in machinery and
equipment remained disappointing.
Dismal development continues in second quarter
The subdued economic developments observed in the first quarter are likely
to have continued in the second quarter. In April, economic activity
declined by 0.9% over the same month last year, according to the global
indicator for economic activity (IGAE, Indicador Global de la Actividad
Económica). The actual reading was well below last month’s Consensus
Forecast, which had anticipated zero growth and is also well below the
2.9% growth rate observed in March. However, seasonal factor distorted the
annual data, since Easter was in March in 2002 but in April this year.
According to seasonally adjusted data, the economy actually expanded 0.53%
over the preceding month compared to a 0.27% decline in March. Agriculture
expanded at an annual rate of 2.7% in April (March: -0.7% year-on-year),
industry dropped 4.8% (March: +3.8% yoy) while services added 0.6% (March:
+2.6% yoy).
Outlook lowered yet again despite some signs of hope
Additional data provide some hope that the economy has bottomed out with
1.3% growth in the second quarter. Both leading and coincident indicators
published on 4 July have increased over the preceding month and the
recently introduced consumer confidence index also suggests an
improvement. In June, consumer confidence rose for the fourth consecutive
month to the highest level since December 2002. Despite these hopeful
signs, however, Consensus Forecast panellists remain sceptical about the
outlook for the remainder of the year. A rebound to full potential growth
depends on a recovery in the United States, in particular the
manufacturing sector, and June employment data for the U.S. suggest that
the weakness in the sector continues. Therefore, second half growth is
seen to remain moderate and the forecast for the full year was lowered yet
again a notch. Moreover, the negative sentiment is also carrying over into
next year, as panellists also lowered the 2004 outlook a notch. |
