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Economic activity declines in fourth quarter 2001 amid weaker investment
and exports
Shortly after the publication of the last Consensus Forecast, the Finance
Ministry released annual and fourth quarter 2001 data for global demand
and supply. Aggregated demand dropped by 1.1% in 2001, exhibiting a
positive performance in the first half of the year but deteriorating
sharply in the third (-3.4% year-on-year) and fourth quarter (-3.3% yoy).
The contraction was driven by weaker investment and exports, while
consumption remained in positive territory. In fact, total consumption
expanded by 2.8% in 2001 and even registered a pickup towards the end of
the year, as the annual growth rate increased from 1.1% in the third
quarter to 1.8% in the fourth quarter. The improvement can be attributed
to increased government consumption, which accelerated from a 3.5%
contraction in the third to a 3.3% expansion in the fourth quarter.
Meanwhile, private consumption expanded by 1.5% in the fourth quarter,
virtually unchanged from the third quarter performance. Gross fixed
investment declined 5.9% in 2001 with a clear deteriorating trend
throughout the course of the year, which started with a slight expansion
in the first quarter (+0.5% yoy) but worsened to a 9.1% contraction in the
final quarter. Exports exhibited a similar pattern culminating in a 10.9%
contraction in the final quarter of 2001. Imports experienced a lesser
contraction but still shrank 7.7% in 2001, as domestic demand weakened
over the year.
Services disappoint but industry shows notable signs of improvement
In January, the economy contracted 2.0% compared to the same month last
year, as evidenced by the global indicator for economic activity (IGAE,
Indicador Global de la Actividad Económica). The contraction was slightly
worse than the 1.8% drop expected by Consensus Forecast panellists. The
1.6% decline in the services sector surprised on the downside, as it
represented the weakest performance in the past year and a sharp
deterioration when compared to the 0.9% contraction reported for December
2001. Lower wholesale and retail activity and weaker hotel services
accounted for the services slump. The dismal performance in the services
sector was partially compensated for by encouraging signs in industry,
which felt the brunt of last year’s adjustment to lower US demand. In
January, the industrial sector declined at an annual rate of 3.3%, which
actually not only marks an improvement from the 3.6% contraction in
December but represents the best monthly performance since March last
year, shortly after the recessionary forces began take hold over industry.
In February, the rate of industrial contraction dropped further to 3.4%.
The maquiladora industry, however, continued to decline at double digit
rates. In January, a 14.1% year-on-year contraction marked a significant
improvement over the strong double digits declines of previous months,
when the contraction came close to 20%. In February, however, the
contraction rate reverted to 18.5% and thus again hovered around the
highest rates registered during the current recession. On a positive note,
the 4.2% year-on-year contraction in gross fixed investment in January
marks a significant improvement over the 7.2% decline in December and
represents the best monthly performance since April last year. In
seasonally adjusted terms, the economy expanded 0.6% over the preceding
month, which apart from November marked the best result in the past year.
Forecasts inch upward despite downside risks from global economy
More recent data corroborate the notion that the worst may be over. While
generally lagging somewhat behind, the open unemployment rate fell to 2.7%
in February from 3.0% in January. And the leading indicator for January,
released on 2 April, also suggests that the Mexican economy is set for a
recovery in the short term. However, the upside risks for the oil price
originating from the current crisis in the Middle East, which threatens to
thwart a global recovery, still loom over this year’s outlook. While
Mexico stands to profit from higher oil prices as an oil exporter, the
repercussions of a higher oil price via slower growth in the United States
could outweigh the short-term benefits for Mexico. As a consequence,
Consensus Forecast panellists have not yet raised their forecasts on a
broad scale and the Consensus for now inched upward only 0.1 percentage
points over last month. Nevertheless, the trend of forecasts is now
clearly moving upwards as this month’s plus follows on an upgrade of the
same order in March. Given the increased optimism over economic growth in
the US, future revisions to forecasts are likely to be on the upside.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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