|
February disappoints to the downside but recession is drawing to an end
In February, the Mexican economy contracted 0.5% compared to the same
month last year. The decline was slightly worse than expected but compares
favourably to the higher contractions observed in previous months (-2.0%
year-on-year in January) and confirms that the recession of the past year
is indeed drawing to an end. On a seasonally adjusted basis the economy
actually expanded 0.64% over the previous month. A 1.8% contraction of the
industrial sector drove the year-on-year decline. Nevertheless, the
February decline in industry represents an improvement when compared to
the more pronounced declines during the past year. More importantly, the
rate of contraction in the manufacturing industry has dropped
substantially from January, indicating that the worst may be over. On the
other hand, the maquiladora industry continues to lumber along, as the
pickup in US demand is only slowly feeding through to higher production
for the Mexican in-bond manufacturing facilities. Services also improved
over the 1.6% contraction reported for January and declined at a more
moderate 0.6% annual rate in February, even though commercial activities
and hotel services remain weak. Finally, agriculture jumped 11.9% in the
second month of the year, more than twice the growth rare registered in
January.
Economic activity disappoints strongly in March …
In March, economic activity contracted 3.5% compared to the same month
last year blasting market expectations, which had suggested economic
growth of 1.2%. The March reading comes on the heels of a much more
moderate contraction of 0.4% in February, which had marked the third
consecutive month of improving growth rates. A number of reasons explain
the dismal economic performance in the third month of the year. First,
since Easter was in March, as opposed to April last year, the month had a
full four working days less when compared to last year. In addition, the
agricultural sector, whose double-digit growth had boosted overall
economic activity last month dropped slightly in March. Nevertheless, even
based on a seasonally adjusted basis, economic activity fell 0.4% in March
over the preceding month, which represents a marked deterioration compared
to the 0.5% growth registered in February. Next to seasonal factors, the
main reason behind the low March turnout was a severe slump in industrial
production, which plummeted 7.6% on an annual basis (February: -1.8%
year-on-year). Finally, services also deteriorated, contracting 1.5%
(February: -0.6% yoy), owing to weaker external trade, lower domestic
commercial activity and a decline in the hotel services industry.
… prompting first quarter GDP growth below expectations
Owing to the surprisingly low March reading, first quarter GDP growth came
in significantly below the Consensus Forecast estimate, having registered
an annual decline of 2.0% compared to the 1.1% decline expected last
month. The result was also below the recent Central Bank estimate of 1.6%
and raised concerns over the timing and strength of a recovery in the
Mexican economy. In particular the fact that on an annual basis, the first
quarter GDP reading remained below the 1.6% decline observed in the fourth
quarter last year represented an ugly detail. It should be noted, however,
that the aforementioned seasonal impact also played an important role in
the economy’s first quarter performance. On a seasonally adjusted basis,
economic growth improved, as the 0.25% contraction over the preceding
quarter was above the 0.61% drop registered in the fourth quarter last
year.
Commerce, restaurants and hotels lead the slump
From a sectoral point of view, the meager growth in the first quarter is
mainly concentrated in two sectors, whereas most of the other sectors
actually experienced an improvement over the fourth quarter. However,
since the two worst performing sectors are also the most important – each
accounting for one fifth of economic activity – they were sufficient to
draw the economy into the red in the first quarter. The commerce,
restaurants and hotels sector experienced the strongest decline of 6.7%
over the first quarter 2001, which represents a deterioration compared to
the 5.6% yoy decline registered in the fourth quarter. In fact, the sector
accounted for the lion share of the 1.1% annual contraction observed in
services. The slide was principally concentrated in vehicle sales and
retailing, particularly shops selling clothing and footwear. In addition,
restaurants and some tourist centers also exhibited lower activity.
Manufacturing industry still not clear from recession
The second-worst performing sector was the manufacturing industry, which
declined 5.6%, following on a contraction of 5.0% in Q4 last year and thus
drove the total industrial sector, which also comprises mining,
electricity and construction, further into the red (Q1: -4.4% yoy; Q4:
-4.1% yoy). As we have repeatedly reported in past editions of the
Consensus Forecast, the manufacturing sector is still not responding to
the upswing in the United States, where growth remains concentrated in
sectors not directly tied to higher demand for Mexican manufactures. More
than two thirds of the 49 sub-sectors observed by the National Statistical
Institute (INEGI) worsened over the same period last year, when the
manufacturing sector began to feel the impact of lower US demand.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
|
