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Mexico’s Economy Contracts in 2019; Outlook Worsens

Jesus Cañas and Chloe Smith

Mexico Update
Mexico’s Economic Activity Flat in 2019; Modest Growth Expected in 2020

March 27, 2020

Mexico’s gross domestic product (GDP) fell 0.5 percent in 2019, the weakest showing since economic output fell 1.8 percent in 2009 following the global financial crisis. Moreover, the GDP growth forecast for 2020, compiled by Banco de México, was revised down from 1.0 percent in January to 0.9 percent in February.[1] More recent private forecasts see Mexico’s economy shrinking by as much as 4.0 percent as concerns intensify over the impact of the coronavirus (COVID-19) on global growth.[2]

Other data were mixed. The latest data available show industrial production, exports and employment increased, while retail sales fell.

Output Falls as Year Closes

In addition to slowing from the previous year, Mexican GDP contracted an annualized 0.6 percent in the final quarter of 2019 (Chart 1). Output fell 4.6 percent among goods-producing industries (manufacturing, construction, utilities and mining), while it grew 0.8 percent among service-related activities (wholesale and retail trade, transportation and business services). Agricultural output fell 4.4 percent.

Chart 1

Exports Gain Momentum Through January

Total exports rose 3.6 percent in January after increasing 1.1 percent in December. Manufacturing exports grew 3.0 percent in January after rising 0.2 percent in December. Three-month moving averages in December and January show strong increases in oil exports after several months of steady declines, and an uptick in manufacturing and total exports (Chart 2). Total exports grew 0.5 percent in 2019 compared with 2018 as manufacturing exports rose 1.5 percent but oil exports fell 16.8 percent.

Chart 2

Industrial Production Increases in January

Mexico’s industrial production (IP) index—which includes manufacturing, construction, oil and gas extraction, and utilities—increased 0.3 percent in January after falling 0.2 percent in December. The manufacturing index rose 0.1 percent in January after growing 0.6 percent in December. The three-month moving average of manufacturing IP ticked up after trending down for three months (Chart 3). North of the border, U.S. IP increased 0.6 percent in February after falling 0.5 percent in January. 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 Decrease in December

Real retail sales declined 0.4 percent in December (the most recent data) after rising 1.7 percent in November. The three-month moving average ticked down 0.3 percent after increasing 0.2 percent in November (Chart 4). Since December 2018, retail sales have climbed 3.4 percent.

Chart 4

Employment Growth Inches Up

Formal sector employment—jobs with government benefits and pensions—grew an annualized 1.5 percent in February, well below the 10-year average of 3.9 percent (Chart 5). Year-over-year employment grew 1.5 percent, the slowest annual growth since the end of the Great Recession. Meanwhile, total employment, representing 55 million workers and including informal sector jobs, grew 2.7 percent year over year in fourth quarter 2019, above its 10-year average of 1.9 percent. The unemployment rate in January was 3.7 percent, up from 3.5 percent a year earlier.

Chart 5

Peso Loses Ground Against the Dollar in March

The Mexican currency has averaged 22 pesos per dollar during the first 18 days in March (Chart 6). The peso has depreciated 18 percent against the dollar since March 2. The Mexican currency has been under pressure due to increased uncertainty regarding how the coronavirus will affect global growth.

Chart 7

Foreign-Owned Government Debt Share Ticks Up

The share of peso‐denominated Mexican government debt held abroad was flat in February. However, the three-month moving average ticked up to 28.5 percent (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 Increases in 2020

Mexico’s consumer price index (CPI) increased 3.7 percent in February over the prior 12 months, up from 3.2 percent in January (Chart 8). CPI core inflation (excluding food and energy) rose 3.7 percent over the previous 12 months in February. Mexico’s central bank cut its policy rate by half a percentage point to 6.5 percent on March 20, its first unscheduled decision in four years. It also announced emergency liquidity measures, including dollar auctions, to support the peso. In making its rate cut, Mexico’s central bank cited the financial market volatility stemming from uncertainty regarding the impact of COVID-19 on world economic activity, and the recent fall in international oil prices.

Chart 1


  1. Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado: Febrero de 2020, (communiqué on economic expectations, Banco de México, February 2020).
  2. "Credit Suisse Sharply Cuts Mexico's 2020 GDP, Sees Economy Shrinking by 4%," Reuters, March 20, 2020.
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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