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Economic
activity beats expectations
A more complete set of data for fourth quarter gross domestic
product (GDP) confirms the 3.8% expansion reported earlier. The fourth
quarter reading represented a slight acceleration compared with the 3.7%
growth observed in the third quarter. The acceleration over the previous
quarter was caused by stronger growth in domestic demand. Consumption
accelerated from 3.6% in the third quarter to 4.8%, while investment
expanded a strong 8.9% year-on-year (Q3 2007: +5.9% yoy). As a result,
domestic demand accelerated from 4.6% in the third quarter to 5.7%. On
the downside, the net contribution of the external sector to overall
growth deteriorated, as imports picked up the pace over the preceding
quarter, while exports slowed. Exports decelerated from 7.9% growth
registered in the previous quarter to 6.4%, while imports expanded 10.5%
annually (Q3 2007: +9.4% yoy), reflecting strong domestic demand. More
recent data confirm the recovery in economic activity. According to the
global indicator for economic activity (IGAE, Indicador Global de la
Actividad Económica), the economy increased 4.2% in January over the
same month last year. The reading was well above the 3.0% expansion
registered in December and also came in ahead of market expectations,
which had anticipated economic activity would increase 3.2% annually. All
three sub-sectors accelerated over the previous month, with agriculture
experiencing the sharpest rebound. Agriculture output expanded 3.3% over
the same month the previous year, after having contracted 0.2% annually in
December. Services increased 5.0% year-on-year (December: +4.9% yoy) and,
finally, the industrial sector expanded 3.1% annually (December: +1.3% yoy).
A month-on-month comparison corroborates the acceleration suggested by the
annual figures, as economic activity increased 0.93% over the previous
month in seasonally adjusted terms, which contrasted the 0.08% contraction
recorded in December. As a result of the January reading, the annual
average growth rate remained unchanged at 3.5%.
Exports
resist despite probable recession in the U.S.
With a
majority of analysts forecasting that the United States may already be in
a recession, growth prospects for Mexico continue to be weak for this
year, as the slowdown in the U.S. economy will likely trigger a notable
downward adjustment in the export-oriented manufacturing industry. So
far, however, exports have shown more resilience than anticipated
– with
annual export growth reaching a solid 11.1% in February, as non-U.S.
exports are expanding at a strong 30% annual pace, thus picking up the
slack from weaker U.S. demand.
As a result,
the Mexican economy is showing signs of being better prepared to weather
the adverse effects of a slowdown in the United States than in previous
years. Nevertheless, recent indicators from the domestic side of the
economy corroborate the picture of weaker growth prospects in the coming
months. In March, the tendency indicator (IAT, Indicador Agregado de
Tendencia) that gauges the assessments of companies about production,
plant utilisation, domestic demand for their products, exports and
personnel, fell from 51.7 points in February to 51.2. In addition, the
producer confidence indicator (ICP, Indicador de Confianza del
Productor) that measures the assessments of companies about
production, plant utilisation, domestic demand for their products, exports
and personnel, deteriorated from 50.9 points in February to 49.4. On a
positive note, the March consumer confidence rose from 101.0 points in
February to 102.7 points, which is above the 100 point threshold that
separates optimism from pessimism. The rise in consumer sentiment was
broad-based, as all the sub-categories composing the index improved over
the previous month. The finance ministry expects the economy to expand
2.8% this year, while the Central Banks sees GDP growth between 2.75% and
3.25%. Consensus Forecast panellists are slightly less optimistic than
the authorities’ view and anticipate that the economy will expand 2.6%
this year, which is down 0.1 percentage points from last month’s
forecast. For 2009, the panel expects economic activity to step up to
3.6%.
Inflation remains stable
In February,
consumer prices rose 0.30% over the previous month, which was down from
the 0.46% price increase registered in January. The reading, however,
came in above market expectations, which had anticipated prices rising
0.24% over the previous month. A decline in food, beverages and tobacco
prices was more than offset by price increases in all other
sub-categories. As a result of the February reading, annual headline
inflation remained unchanged at January’s 3.7%. The core inflation index,
which excludes more volatile categories such as oil, fresh fruits and
vegetables, added a more pronounced 0.47% over the preceding month.
Nevertheless, annual core inflation remained unchanged for the fifth
consecutive month at 4.1%. Despite the slight moderation in the
development of prices in the past months, both headline and core inflation
remain above the Central Bank’s long-term inflation target of 3.0%. On 14
March, the Central Bank decided to maintain the benchmark interest rate
unchanged for the fifth consecutive month at 7.5%, in a decision largely
expected by the market. Although inflation figures are slightly below the
Bank’s forecast range for the first quarter, monetary authorities warned
that food prices continue to be a cause for concern. Nevertheless, given
the relatively benign inflationary environment and the deteriorating
prospects for economic growth, the Central Bank may start lowering
interest rates in the second half of the year. Finance Minister Agustín
Carstens recently stated that inflation may end the year below 3.7%.
Consensus Forecast panellists anticipate headline inflation stepping up a
notch to 3.8% by the end of this year, which is unchanged over the
previous month. For 2009, the panel expects inflation to moderate to
3.5%. |
