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Economic
activity rebounds in April
A more complete set of data for first quarter gross domestic product
(GDP) confirms the 2.6% expansion reported earlier. The first quarter
reading represented a notable deceleration compared with the 4.2% growth
observed in the fourth quarter. The deterioration over the previous
quarter was broad-based, as both domestic demand and the external sector
decelerated over the fourth quarter. Total consumption slowed from 4.0%
growth in the fourth quarter to 3.3%, while investment expanded 2.7%
year-on-year (Q4 2007: +4.8% yoy). Meanwhile, the net contribution of the
external sector to overall growth deteriorated, as exports decelerated
from 7.8% in the fourth quarter to 5.4%, while imports picked up the pace
and increased 8.8% over the same quarter last year (Q4 2007: +8.2% yoy).
More recent data point to a recovery in economic activity. According to
the global indicator for economic activity (IGAE, Indicador Global de
la Actividad Económica), the economy increased 6.2% in April over the
same month last year. The reading constituted a strong rebound compared
to the 1.5% contraction registered in March, which had been negatively
affected by the Easter holidays, and also came in ahead of market
expectations, which had anticipated economic activity expanding 4.5%
annually. The acceleration over the previous month was broad-based, as
all three main economic sectors registered higher growth rates.
Agriculture experienced the sharpest rebound and expanded 7.2% over the
same month last year, after having contracted 5.3% in March. The
industrial sector also bounced back and increased 5.5% year-on-year
(March: -4.9% yoy). Finally, the services sector expanded 6.7% (April:
+1.1% yoy). Nevertheless, a month-on-month comparison does not
corroborate the acceleration suggested by the annual figures, as economic
activity declined 0.17% over the previous month in seasonally adjusted
terms, which contrasted the 1.01% expansion recorded in March.
Nevertheless, as a result of the strong April reading, the annual average
growth rate stepped up from 3.3% in March to 3.6%.
Outlook
remains stable
Consensus
Forecast panellists left growth projections for this year unchanged for
the third consecutive month, as the Mexican economy continues to weather
the adverse effects of the slowdown in the United States. Exports keep
showing unexpected resilience, as non-U.S. destinations are picking up the
slack from weaker demand from the United States.
Furthermore, the current economic situation shows that the Mexican economy
is now better prepared to face the effects of a slowdown in the United
States than in previous periods of weakness,
as domestic demand is decoupling from the movements of
its northern neighbour to some extent.
Recent indicators from the domestic side of the economy show mixed
results, but the overall balance seems to point to a stable outlook for
the time being. In June,
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, rose from 51.3 points in
May to 52.9. Meanwhile, the producer confidence indicator (ICP,
Indicador de Confianza del Productor) which measures the preferences
for investment, the assessment of the current and future state of the
economy as well as the current and future state of the company fell
slightly, from 48.2 points in May to 47.8. On a negative note, consumer
confidence declined for the third consecutive month, falling from 94.2
points in May to 90.7. Thus, after having crossed into pessimistic
territory in April for the first time in almost three years, the index
falls further below the 100-point threshold, as rising prices are eroding
consumer sentiment. Finance Minister Agustín Carstens recently stated
that the economy probably expanded above 3.0% in the first half of the
year, as the slowdown in the United States had a smaller impact than
initially expected. The finance ministry expects the economy to grow 2.8%
this year, while the Central Bank anticipates GDP growth to be between
2.4% and 2.9%. Consensus Forecast panellists expect the economy to grow
2.6% this year, which is unchanged over last month’s forecast. For 2009,
the panel anticipates economic activity to step up to 3.1%.
Central Bank raises interest rates as inflation rises to
three-year high
In May,
consumer prices fell 0.11% over the previous month, which contrasted the
0.23% price rise registered in April. Nevertheless, the reading came in
above market expectations, which had anticipated prices declining a more
pronounced 0.15% over the previous month. Falling prices for housing,
which declined 1.16% over the preceding month, were the main driver behind
the price drop in May. Despite the monthly price decrease, annual
headline inflation jumped from 4.5% in April to 4.9%, which is the highest
rate in over three years. The core inflation index, which excludes more
volatile categories such as oil, fresh fruits and vegetables, contrasted
the developments seen in headline inflation and added 0.49% over the
preceding month. As a result, annual core inflation rose from 4.6% in
April to 4.9%. Thus, both headline and core inflation remain well above
the Central Bank’s long-term inflation target of 3.0%. On June 18, the
government announced an accord with industry groups to freeze the price of
150 food items through 2008, in order to curb price pressures. In
addition, on June 20, the Central Bank unexpectedly lifted the benchmark
interest rate by 25 basis points to 7.75%. The Bank ignored the remarks
made by President Felipe Calderón, who in the previous days had signalled
that borrowing costs were too high, and had urged monetary authorities to
take into consideration the spread in interest rates with the United
States when setting monetary policy. Consensus Forecast panellists
anticipate headline inflation moderating to 4.6% by the end of this year,
which is 0.4 percentage points above last month’s forecast. For 2009, the
panel expects inflation to decelerate further to 3.6%. |
