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December growth remains below expectations
In December, the monthly indicator for economic activity (IGAE, Indicador
Global de la Actividad Económica) rose 2.7% in real terms compared with
the same month in 2001. The reading was better than the 1.0% growth
registered in November 2002 but remained below expectations, which had
seen a slightly more robust year-end performance. The improvement over the
preceding month was most pronounced in industrial activity, which reverted
from a 0.5% contraction in November to a 1.7% expansion in December;
services also improved notably from 2.4% to 4.0% growth, whereas
agriculture remained in negative territory, moving from a 6.9% to a 4.7%
decline in December.
Fourth quarter growth disappoints as robust domestic demand is offset by
weakness in external side of the economy
In the fourth quarter, the economy expanded 1.9% compared to the same
period in 2001. This was a notch better than the 1.8% annual growth
registered in the third quarter. However, in part seasonal factors
inflated the reading. On a seasonally adjusted basis, gross domestic
product (GDP) expanded just 0.15% over the preceding quarter, precisely
half the rate registered in the third quarter. Official data for supply
and demand have not yet been published. However, the data published so far
suggest that a deterioration of the external sector marked the fourth
quarter developments, whereas those activities related to domestic demand
showed improvement. Gross fixed investment increased 1.2% in December and
was unchanged over the fourth quarter 2001, which represents an
improvement compared to the 0.8% contraction in the third quarter. Full
year growth came in at a disappointing 0.9% following on the 0.3%
contraction in 2001.
Services lead growth driven by healthy commercial activities and strong
telecommunications
On a sectoral basis, services led growth with a 3.1% expansion over the
fourth quarter 2001, accelerating from 2.6% growth in the third quarter.
Agriculture, on the other hand, deteriorated from 1.0% growth in Q3 to a
4.5% contraction in the fourth quarter. The improvement in services was
driven by a better performance in the commerce, restaurants and hotels
sector, where activity increased at an annual 3.3% rate, almost double its
third quarter growth rate. The sector profited from higher domestic and
external sales volumes and from a healthy growth in hotel occupation
rates. Transport, storage and communications also improved markedly over
their third quarter growth of 3.3%, adding 4.4% in the final quarter of
the year, amid particularly strong performance of telecommunications.
Financial services, on the other hand, deteriorated compared to the third
quarter growth rate of 4.2%. Nevertheless, the sector still expanded a
healthy 3.7% on an annual basis.
Industry improves in fourth quarter but growth remains weak and clouds
accumulate on the horizon
The industrial sector also improved compared to the third quarter
performance, adding 0.9% over the final quarter in 2001, following on 0.6%
growth in the third quarter. Mining was the main driver behind the
positive development in industry, as output in that sector reverted from a
0.4% contraction to a 2.2% expansion. Most notably, the manufacturing
industry managed to pull clear from almost zero growth in the third
quarter to a modest 0.5% increase. The still moderate recovery of
industrial manufacturing was broad-based and seized all sub-sectors:
intermediate consumer goods output improved from a 0.5% decline in Q3 to
1.1% growth in Q4, final consumer goods from 2.2% growth to 3.3% and
capital goods production accelerated from a 4.9% to 6.7% expansion. The
most important development, however, took place in the maquiladora
industry (in bond manufacturing, which mainly serves the U.S. market). In
the final quarter of last year, the maquiladora industry registered growth
for the first time in almost two years (see chart). Since a lack of demand
from the United States has been the key driver behind the dismal
performance of the Mexican economy in the past two years, the turning
point in the maquiladora industry could be representative for the whole
economy. However, given the warning signs about the U.S. recovery, where
consumer confidence is faltering after years of resilience, it is
certainly too early to expect a full-blown rebound in the Mexican economy.
Moreover, latest indicators from U.S. manufacturing suggest that the
maquiladora industry could fall back into negative territory. In February,
the Institute for Supply Management’s index of manufacturing activity fell
to a three-month low of 50.5 from 53.9 in January, just a notch short of
the critical 50 points mark, which denotes the threshold between
contraction and expansion. Nevertheless, the Consensus is optimistic that
Mexican industry will continue its recovery, with the sector expanding
2.1% in the first half of the year, accelerating to a 3.8% in pace in the
second half, following the pattern of economic development, which most
analysts expect for the United States.
Outlook for 2003 lowered as lingering war concerns dim outlook for the
U.S. economy
Given the paramount importance of the manufacturing sector, the overall
economy is likely to follow the same pattern: positive but still moderate
recovery in the first half of the year, gathering speed in the second
half. According to this month’s Consensus Forecast, GDP will expand at an
average 2.5% in the first half, accelerating to 3.4% in the second half.
For the full year, panellists expect the economy to grow by 2.8%, down 0.3
percentage points over last month, as lingering war concerns dim the
outlook for the U.S. economy. Without a more solid U.S. recovery, the
Mexican economy cannot reach its full growth potential. In fact,
panellists do not even expect the Mexican economy to reach full speed in
2004, when growth is seen limited to 4.0% on average. Only in 2005 and
thereafter, the picture should improve with growth rates accelerating to a
more buoyant 5% pace. The 6.7% expansion reached in 2000, however, is
unlikely to be repeated.
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