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The Mexican economy continues to disappoint.
Despite the favourable development of the U.S. economy, the country is not
recovering substantially. Rather than depending on the U.S. economy as a
whole, Mexican growth hinges on the U.S. manufacturing sector, which is
lagging behind the overall economy. However, the dismal second quarter seems
to have marked the trough and once recovery seizes the U.S. manufacturing
sector, Mexico should experience a healthy rebound. |
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Economy slumps in second quarter
Supply and demand data published for the second quarter shortly after last
month’s Consensus Forecast, confirmed the 0.2% annual gross domestic
product (GDP) expansion released earlier. The second quarter reading
marked a deterioration compared to the 2.3% growth registered in the first
quarter. However, seasonal factors distorted the annual data, as Easter
was in the first quarter last year but in the second quarter this year,
which subtracted four working days as a result. According to seasonally
adjusted data, the economy actually expanded 1.2% over the preceding
quarter, ending a string of two negative quarters.
Consumption keeps up economy but investment enters negative territory
The deterioration in the annual growth rate was broad-based and seized the
domestic side of the economy and external sectors alike. As in the past,
the external sector suffered from a lack of impetus from the U.S. economy.
As a result, exports tumbled 3.5% over the same period last year, compared
to a 3.9% expansion observed in the first quarter. Imports, which serve
principally as input for the assembling plants generating most of the
export revenues, also slumped (Q2: -5.2% year-on-year versus 0.8% yoy
growth in the first quarter) indicating that the difficulties in the
maquiladora industry will continue to thwart a recovery of the Mexican
economy in the near future. On the domestic side, consumption constituted
the supporting pillar, even though the growth rate plummeted from 3.3%
registered in the first quarter to just 1.1% in the second. The
deterioration in total consumption was concentrated in the private sector
and was mostly the result of declines in durable consumer goods purchases,
whereas public consumption actually improved, as the government still
profited from a higher oil price observed in the first quarter of the
year.
The most disappointing development occurred in investment. Gross fixed
investment declined 3.6% over the second quarter last year, following on
0.6% growth in the first quarter. The slide was mostly concentrated in
machinery and equipment investment , which declined 7.6% over the same
period last year (Q1: -3.9% yoy). Construction activity, on the other
hand, still increased, albeit at a much lower pace than in the first
quarter (Q2 +1.3% yoy versus Q1 +5.9% yoy).
Economic growth below expectations
The subdued economic developments observed in the second quarter are
likely to have carried over into the third quarter. In July, economic
activity expanded a meagre 0.7% 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 the economy growing at an annual rate of
1.2%. Moreover, the reading was less than half the 1.5% expansion observed
in June and according to seasonally adjusted data, the economy even
contracted 0.03% over the preceding month compared to a 0.61% expansion in
June. Virtually all sectors experienced deceleration. Agriculture expanded
at an annual rate of 0.4% in July (June: +10.0% year-on-year), industry
dropped 1.9% (June: -1.7% yoy) while services added 2.0% (June: +2.3%
yoy). |
