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Mexico’s Third-Quarter Output Revised Down

Jesus Cañas and Chloe Smith

Mexico Update

December 18, 2019

Preliminary revision to Mexico’s third-quarter gross domestic product (GDP) growth suggested an increase of 0.1 percent annualized, down from the initial estimate of 0.4 percent. The consensus GDP growth forecast for 2019, compiled by Banco de México, was revised down to 0.0 percent in November from 0.3 percent in October. Growth for 2020 is forecast to be 1.1 percent.

Other data were mixed. Exports declined, employment growth weakened but remained positive, and industrial production and inflation were flat. The peso held steady against the dollar in November, and retail sales were up.

Output Growth Weak

Mexican GDP barely expanded in the third quarter at an annualized 0.1 percent, following three quarters of negative growth (Chart 1). Output in goods-producing industries (manufacturing, construction, utilities and mining) fell 0.5 percent. Service-related activities (for example, wholesale and retail trade, transportation and business services) gained 0.3 percent. Agricultural output spiked 13.8 percent.

Chart 1

Exports Fall in October

Total exports fell 0.1 percent in October after decreasing 5.6 percent in September. Manufacturing exports decreased 0.3 percent in October after falling 4.6 percent in September. Three-month moving averages have shown a steady decline in oil exports since May and flat-to-down activity in manufacturing and total exports (Chart 2). Consistent with the recent weakness, total exports were up only 1.3 percent through October compared with the same period in 2018, as manufacturing exports grew 2.6 percent but oil exports fell 17.6 percent.

Chart 2

Industrial Production Flat in September; Manufacturing Ticks Up

Mexico’s industrial production (IP) index—which includes manufacturing, construction, oil and gas extraction, and utilities—was flat in September after increasing 0.6 percent in August. The manufacturing index rose 0.6 percent in September after decreasing 0.3 percent in August. The three-month moving average of total IP edged up in August and September after trending down since the end of 2018 (Chart 3). North of the border, U.S. IP declined 0.8 percent in October after falling 0.3 percent in September. The correlation between IP in Mexico and the U.S. increased considerably with the rise of intra-industry trade after the implementation of the 1994 North American Free Trade Agreement.

Chart 3

Retail Sales Increase in September

Real retail sales grew 0.9 percent in September after rising 0.3 percent in August. The three-month moving average ticked up 0.4 percent after stagnating for two months (Chart 4). Meanwhile, retail sales are up 4.6 percent since December 2018.

Chart 4

Employment Growth Below Average

Formal sector employment—jobs with government benefits and pensions—grew an annualized 2.0 percent in October, well below the 10-year average of 3.6 percent (Chart 5). Meanwhile, total employment, representing 55 million workers and including informal sector jobs, grew 2.2 percent in third quarter 2019, slightly above its 10-year average of 2.0 percent. The unemployment rate in September was 3.6 percent, up from 3.2 percent a year earlier.

Chart 5

Peso Holds Steady Against the Dollar in November

The Mexican currency averaged 19.3 pesos per dollar in November, the same as October (Chart 6). The peso has gained 4.0 percent against the dollar since December 2018 and is almost back to its 2018 average of 19.2 pesos per dollar. The Mexican currency has been under pressure due to increased uncertainty regarding U.S. trade policy and Mexico’s domestic policy.

Chart 6

Foreign-Owned Government Debt Falls Further

The share of peso‐denominated Mexican government debt held abroad fell to 27.5 percent in October. The three-month moving average decreased to 28.2 percent, its lowest level since early 2012 (Chart 7). The extent of nonresident holdings of government debt is an indicator of Mexico’s exposure to international investors but is also a sign of confidence in the Mexican economy.

Chart 7

Inflation Holds Steady in October

The Consumer Price Index (CPI) increased 3.0 percent over the prior 12 months in October, the same rate as September (Chart 8). CPI core inflation (excluding food and energy) rose 3.7 percent over the previous 12 months in October. Mexico’s central bank lowered its benchmark interest rate by 25 basis points to 7.5 percent in November. The central bank cited slowing inflation, increasing slack in the economy and the recent behavior of international interest rates as the main reasons for the rate cut.

Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Noviembre de 2019, (communiqué on economic expectations, Banco de México, November 2019).

About the Authors

Cañas is a senior business economist, and Smith is a research assistant in the Research Department at the Federal Reserve Bank of Dallas.

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