Mexico Economic Outlook Stable Despite Weaker Third-Quarter Data

from the Dallas Fed

— this post authored by Jesus Canas and Alexander T. Abraham

The consensus Gross Domestic Product (GDP) growth forecast for 2018 remained at 2.3 percent despite a downward revision of third quarter 2017 growth. Forecasters are predicting a bounceback in activity in the fourth quarter; 2017 GDP growth is still expected to come in at 2.1 percent.

More recent data are mixed. Exports, industrial production and retail sales all declined while employment growth remained strong. The peso weakened slightly against the dollar in November, and inflation ticked up.

Revisions Further Depress Third-Quarter Output Growth

Revisions to Mexico’s third-quarter GDP estimate brought annualized quarterly growth to -1.2 percent, down from -0.8 percent (Chart 1). Service-related activities (wholesale and retail trade, transportation and business services) declined 0.4 percent. Goods-producing industry output contracted -2.4 percent. Agricultural output grew 1.9 percent.

Total and Manufacturing Exports Slip in October, Petroleum Exports Rise

Total exports fell 0.7 percent in October. Manufactured-goods exports declined 1.3 percent while oil exports jumped 5.2 percent. In the last two months, the three-month moving average shows consecutive gains for oil exports and consecutive declines for total and manufacturing exports (Chart 2). On a year-to-date basis, exports grew 7.2 percent through October while manufacturing exports rose 6.4 percent compared with the same period last year. Oil exports were up 19.7 percent in the first 10 months of 2017 compared with the same period a year ago. The rise in oil exports this year stems largely from higher oil prices, not increased volume of exports.

Industrial Production Declines in October

Mexico’s industrial production (IP), which includes manufacturing, construction, oil and gas extraction, and utilities, dropped 0.2 percent in October. Manufacturing IP slid 0.6 percent. The declines follow weak September readings when IP fell 0.4 percent and manufacturing IP dipped 0.3 percent. As a result, the three-month moving average fell for both measures. The moving average measure of total IP has fallen for seven consecutive months (Chart 3). In the U.S., IP rose 0.3 percent in November after a 1.1 percent jump in October.