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Mexico's Economy Continues to Grow into the Fourth Quarter

January 31, 2014 · Update in PDF PDF

Mexico’s economy expanded well into the fourth quarter as the monthly proxy for gross domestic product (GDP) increased in October and November—a continuation of growth following a third-quarter rebound. Other recent data are generally consistent with continued expansion. Industrial production, employment and retail sales grew, although exports edged down. Inflation turned up, and the peso reversed course and lost some ground against the dollar in January.

Output Grows

Mexico’s global economic activity index (IGAE), the proxy for GDP, grew 0.4 percent in November after rising 0.3 percent in October (Chart 1). Service-related activities (including trade and transportation) expanded 0.6 percent, while goods-producing industries (including manufacturing, construction, utilities and mining) grew 0.1 percent. Agricultural output fell 6.5 percent. The most recent consensus forecast indicates that the economy grew 1.3 percent in 2013 and that it will grow 3.4 percent in 2014.

Exports Edge Down

Exports fell 0.2 percent in December but closed the year slightly up. In 2013, total exports grew 0.8 percent, held down by oil exports, which declined 7.5 percent. Manufacturing exports increased 2.6 percent (Chart 2). In sum, exports posted their second consecutive year of little to no growth, having risen a meager 3.8 percent in 2012. Exports grew at double-digit rates in 2010 and 2011.

Industrial Production Improves

Industrial production (IP) grew 0.1 percent month over month in November after expanding 0.4 percent in October. Three-month moving averages show improvement in total IP, while manufacturing output shows some slowing (Chart 3). Meanwhile, U.S. IP grew 0.3 percent in December after rising 1.1 percent in November. 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 Spike

Retail sales grew 3 percent in November after rising 0.7 percent in October. The three-month moving average shows that retail sales rebounded after declining significantly during the third quarter (Chart 4). Year over year in November, retail sales were up 1.4 percent, which is slightly better than in 2012, when they fell 0.4 percent. Despite this, consumer confidence has worsened over the past four months.

Job Growth Continues

Formal-sector employment—jobs with government benefits and pensions—increased at an annualized rate of 3.1 percent in December, below November’s 4.2 percent but above the average monthly rate of 2.9 percent for the year (Chart 5). Formal-sector employment grew 4.6 percent in 2012.

Peso Reverses Course in January

The exchange rate averaged 13.2 pesos per dollar in January, a depreciation of 1.4 percent from December, when it averaged 13 (Chart 6). The peso appreciated 0.6 percent in December. Higher U.S. interest rates and a spike in Mexico inflation may be helping push up the dollar relative to the peso.

Inflation Ticking Up

Inflation spiked in December, and prices were up 4 percent year over year, their highest level since June 2013 (Chart 7). The increase was due to higher gasoline prices, combined with a rise in fresh fruit and vegetable prices. Prices excluding food and energy were up 2.8 percent year over year, which is still below the central bank’s long-term inflation target of 3 percent. The central bank lowered its policy rate to 3.5 percent in October over concerns that the economy was continuing to slow. It was the third monetary policy easing this year.

—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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