|
Economy
accelerates a notch in the second quarter
In the second quarter, gross domestic product (GDP) increased 2.8% over
the same quarter last year. The reading was slightly up from the 2.6%
expansion registered in the first quarter and came in just in line with
last month’s Consensus Forecast. At the sector level, faster growth in
agriculture as well as in the industrial sector compensated for a
deceleration in the services sector. Agricultural output expanded 4.4%
year-on-year, which contrasted the 1.1% contraction experienced in the
first quarter. In addition, industry accelerated from 1.0% annual growth
in the first quarter to 1.3%. The acceleration in the industrial sector
was mainly caused by faster growth in manufacturing, which expanded 3.7%
annually (Q1: +2.9% yoy). On the other hand, growth in the services
sector, which continues to expand above average and thus remains the main
support for economic growth, slowed slightly, from 3.8% in the first
quarter to 3.5%. A quarter-on-quarter comparison corroborates the
acceleration suggested by the annual figures. According to seasonally
adjusted data, the economy expanded 0.16% over the previous quarter, which
contrasted the 0.12% contraction recorded in the first quarter.
Confidence
rises despite weak economic growth
Disappointing growth figures for the second quarter confirm the weakness
affecting the Mexican economy. In particular, the important industrial
sector – which expanded a meagre 1.3% in the second quarter – continues to
be affected by the slowdown in the United States and is dragging down
overall growth. On a positive note, the external sector continues to
perform better than expected, with exports expanding above 15.0% annually,
as non-U.S. destinations are picking up the slack from weaker U.S. demand.
Despite the moderate economic growth, recent indicators from the domestic
side of the economy point to an acceleration in the coming months. In
August,
the tendency
indicator (IAT, Indicador Agregado de Tendencia) jumped from 50.5
points in July to 53.6. Moreover, the producer confidence indicator (ICP,
Indicador de Confianza del Productor) rose from 45.1 points in July
to 46.0 points. In addition, consumer confidence rose in August after
having declined for four consecutive months. The consumer confidence
index rose from 88.4 points in July to 89.6. Nevertheless, consumer
sentiment still remains well below the 100-point threshold that separates
optimistic from pessimistic territory. The finance ministry expects the
economy to grow 2.4% this year (recently revised from its previous 2.8%
estimate), while the Central Bank anticipates GDP growth to be between
2.25% and 2.75%. Consensus Forecast panellists share the authorities’
assessment and expect the economy to grow 2.4% this year, which is 0.1
percentage points down from last month’s forecast. For 2009, the panel
anticipates economic activity to step up to 2.9%.
Central Bank raises interest rates again
In July,
consumer prices increased 0.56% over the previous month, which was up from
the 0.41% price rise registered in June. The reading came in broadly in
line with market expectations, which had anticipated prices adding 0.51%
over the previous month. Higher prices for food, beverages and tobacco as
well as for education and leisure were the main drivers behind the monthly
price rise. As a result of the monthly reading, annual headline inflation
stepped up a notch, from 5.3% in June to 5.4%, which is the highest rate
since November 2004. The core inflation index, which excludes more
volatile categories such as oil, fresh fruits and vegetables, added a more
moderate 0.40% over the previous month. As a result, annual core
inflation inched up from 5.0% in June to 5.1%. Thus, both headline and
core inflation remain well above the Central Bank’s long-term inflation
target of 3.0% and even exceed the upper limit of the ±1.0% tolerance
margin. Amid the strong inflationary pressures, on 15 August, the Central
Bank decided to lift the benchmark interest rate for the third consecutive
month by 25 basis points to 8.25%. However, monetary authorities
signalled that slower economic growth as well as moderating commodities
prices may render further rate hikes unnecessary for the time being. The
Central Bank aims at lowering inflation to its 3.0% target by 2010.
Consensus Forecast panellists anticipate headline inflation stepping up to
5.3% by the end of this year, which is 0.3 percentage points above last
month’s forecast. For 2009, the panel expects inflation to decelerate to
3.9%.
Current
account deteriorates
In the
second quarter, the current account balance recorded a deficit of US$ 2.0
billion. The figure represented a deterioration compared to the US$ 1.5
billion deficit registered in the same quarter the previous year and also
exceeded the US$ 1.5 billion deficit recorded in the previous quarter.
The deterioration of the current account balance in the second quarter was
entirely caused by a higher deficit in the service and income balances,
which jumped from US$ 5.3 billion in the first quarter to US$ 7.5
billion. Meanwhile, the trade balance deficit dropped from US$ 1.6
billion in the first quarter to US$ 889 million, as exports outpaced
imports. Exports increased 17.3% annually, up from the 16.4% pace seen in
the previous quarter, while imports expanded 14.7% over the same quarter
last year (Q1: +14.4% year-on-year). Finally, the transfer balance
surplus rose from US$ 5.4 billion in the first quarter to US$ 6.4 billion,
as remittances from workers abroad reached US$ 6.3 billion, up from the
US$ 5.3 billion registered in the preceding period. However, the slowdown
in the United States continues to have a significant impact on this
important source of financing, as remittances dropped 1.1% compared to the
same period last year in the second quarter. As a result of the second
quarter figure, the moving annual current account deficit rose from US$
4.9 billion in the first quarter to US$ 5.5 billion.
Consensus
Forecast participants see the current account balance deficit widening to
US$ 10.4 billion by the end of the year. For 2009, the panel sees the
current account deficit increasing further to US$ 14.5 billion. |
