Consumption deteriorates but investment and exports improve in first
Shortly after the release of the May edition of the Consensus Forecast,
the National Statistical Institute (INEGI) released the supply and demand
figures for the first quarter. The data confirmed the 2.0% annual decline
in GDP (for details about sectoral performance see the June 2002 edition)
but surprised with domestic demand figures above expectations. According
to the release, aggregate demand declined 2.5% compared with a 3.3%
contraction in the preceding quarter and also below the rate expected by
the market. The improvement over the contraction recorded in the preceding
quarter was due to strengthening in the external sector, investment and
inventories. Consumption performed worse than expected, down 1.5% over the
first quarter 2001 compared to 1.8% annual growth in the preceding quarter.
The decline in consumption was equally distributed between government
consumption (Q1 02: -1.1% year-on-year; Q4 01: +3.3% yoy) and private
consumption, which reverted from 1.5% annual growth to a decline of the
same magnitude. The investment decline did not come as a surprise, since
earlier releases had pointed to the 6.9% drop in the first quarter this
year. While still a strong decline, the first quarter reading actually
represents an improvement over the 9.1% drop observed in the fourth
quarter. Finally, the 5.8% contraction in exports is also better than the
double-digit decline recorded in the preceding quarter, despite an ongoing
slump in the maquiladora industry.
Seasonally adjusted data justify more optimistic outlook
The first quarter data were also influenced by seasonal factors since
Easter was in the first quarter, as opposed to the second quarter last
year. According to seasonally adjusted data, global demand increased 0.1%
over the preceding quarter. Investment and consumption remained in
negative territory even when taking into account less working days.
Exports, however, picked up 0.8% over the fourth quarter. The seasonally
adjusted first quarter figures indicate that the Mexican economy is
finally bottoming out as external demand is picking up, while internal
demand remains sluggish.
April data corroborate optimism
More recent data for economic activity corroborate the stabilising outlook.
In April, economic activity increased 4.0% over the same month last year.
The reading represented a sudden change when compared to the 3.5%
contraction in March this year and was also above the Consensus, which had
expected an annual expansion of 2.6% in the fourth month of the year. It
should be noted, however, that the result was strongly impacted by the
above mentioned Easter effect, which added four extra working days in
April when compared to April last year. Nevertheless, even on a seasonally
adjusted basis, the Mexican economy is treading on firmer ground.
According to INEGI data, the economy expanded a healthy 0.9% over March,
which represents the strongest monthly reading in almost two years. The
healthier April reading was driven by the industrial sector, which had
suffered in particular from lower demand from the United States and thus
had previously led declines. In April, industry increased 8.0% on an
annual basis, driven by domestic manufacturing, whereas the maquiladora
industry still contracted, albeit at a much lower rate than in previous
months. Construction also noted a strong pick up in activity, while mining
and electricity, gas and water saw more subdued improvements compared to
previous months. Services, which depend less on external demand, expanded
a more moderate annual rate of 2.8% amid stronger wholesale and retail
activity and a pickup in telecommunications. Finally, agriculture, which
had provided some cushion to the overall economy amid the ailing industry,
was the slowest growing sector, up 1.8% over the same month last year.
Additional indicators augur rebound
The leading indicator for April (released on 2 July), which anticipates
the future development of the economy, registered the sixth consecutive
uptick, presaging further improvements in the economic performance. In
addition, the April increase was the strongest upward movement since 1999,
which indicates that the Mexican economy is in for a rebound. Despite
these positive signs, panellists have lowered their GDP forecasts for this
year a notch since last month, amid a slightly less optimistic outlook for
the United States where the sell-off in the wake of the accounting crisis
threatens to have an impact on consumption via the wealth effect. For next
year, the GDP growth forecast was lowered a notch since last month.
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.