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Mexico's Economic Growth Slows Further

August 5, 2013 · Update in PDF PDF

Mexico’s economic indicators in recent months have pointed to continued decelerating growth. Exports are down year to date as of May, and industrial production remains below last year’s levels. Employment growth was subdued in May, while retail sales fell. The inflation rate fell to its lowest level in four months, and the peso depreciated considerably against the dollar in June.

Output Growth Modest

The Global Economic Activity Index, a monthly proxy for Mexico gross domestic product (GDP), grew 0.4 percent in May after falling 0.8 percent in April. The index has leveled off after turning up at the beginning of the year (Chart 1). In May, service-related activities (including trade, transportation and government) grew 0.3 percent. Goods-producing industries (including manufacturing, construction, utilities and mining) saw 1.4 percent growth. Agricultural output fell 0.3 percent. The 2013 GDP growth forecast from the latest central bank survey of economic analysts has been revised down to 2.8 percent from 3 percent in May.

Exports Continue Falling

Exports fell 0.2 percent in May and are down 1.3 percent in the first five months of 2013 compared with the same period last year. Three-month moving averages show a slight improvement in manufacturing exports, while oil shipments show considerable losses (Chart 2). Exports are posting their second consecutive year of slow growth, having risen a meager 3.8 percent in 2012.

Industrial Production Rebounds

Industrial production (IP) grew 1.4 percent month over month in May after falling 1.8 percent in April. Despite the rebound, three-month averages continued slowing and Mexico IP remains below the levels reached in mid-2012 (Chart 3). U.S. IP grew 0.4 percent in June after falling 0.1 percent in May. Mexico’s industrial production typically tracks U.S. IP, due in part to the U.S. automotive industry’s large presence in Mexico.

Retail Sales Still Sluggish

Retail sales fell 0.8 percent in April after growing 0.2 percent in March. The three-month moving average shows that retail sales remain at mid-2012 levels (Chart 4). In 2012, retail sales fell 0.4 percent (December over December). Consumer confidence slipped in June to its lowest level in nine months.

Job Growth Slows in May

Formal-sector employment—jobs with government benefits and pensions—grew at an annualized rate of 3.2 percent in May, well below April’s growth of 5.3 percent but around the average monthly growth rate of 3 percent for the year (Chart 5). Formal-sector employment grew at a 4.6 percent pace in 2012.

Peso Loses Ground Against Dollar

The exchange rate averaged 12.9 pesos per dollar in June, a depreciation of 5 percent from May, when it averaged 12.3 pesos per dollar (Chart 6). Higher U.S. interest rates may be pushing up the dollar relative to the peso.

Inflation on Downslide

Inflation fell in June as prices rose 4.1 percent year over year after growing 4.7 percent in May (Chart 7). Prices excluding food and energy increased 2.8 percent, below the central bank’s long-term inflation target of 3 percent. Since lowering the policy rate to 4 percent in March over concerns that the economy was slowing, the central bank has made no further moves.

—Jesus Cañas

About the Author

Cañas is a business economist in the Research Department at the Federal Reserve Bank of Dallas.


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