Mexico’s GDP contracted an annualized 0.4% in the fourth quarter of 2021 after falling 1.7% in the third quarter, giving a preliminary estimate of 1.6% for GDP growth in 2021 (fourth trimester/fourth trimester). Banco de México’s consensus GDP growth forecast for 2022 fell from 2.5% in December to 2.6% in January (Q4/Q4).
The latest data available shows that exports, retail sales and employment increased, while industrial production remained largely unchanged. The peso recovered in January, while inflation remained high, prompting the central bank to raise the policy rate further.
As in the rest of the world, new cases of COVID-19 in Mexico have risen sharply in recent months. In January, the number of new infections more than doubled from its previous peak in mid-August. New cases per day have started to decline in recent weeks but remain high. The vaccination rate has improved to cover 60 percent of the population.
Production falls in the fourth quarter
Preliminary estimates suggest that Mexico’s fourth-quarter GDP fell 0.4%, mainly due to a contraction in output in the services sector, which accounts for 62% of the economy (Chart 1). The goods-producing sector (manufacturing, construction, utilities and mining) rose 0.4%, but the output of services-related activities (wholesale and retail trade, transportation and business services) declined. contracted by 0.7%. Agriculture rose 0.3% in the fourth quarter.
Exports continue to improve
The three-month moving average of total exports rose 1.6% in December, as oil exports fell 0.8%, but the dominant manufacturing category rose 1.9% (Chart 2). Month on month, total exports contracted by 0.6% in December; oil exports fell by 8.5% and exports of manufactured goods remained stable. Mexico’s total monthly exports in December were 14.9% higher than pre-pandemic levels in February 2020.
Industrial production changed little
The three-month moving average of Mexico’s industrial production (IP) index, which includes manufacturing, construction, oil and gas extraction, and utilities, and manufacturing IP were relatively stable in November (Chart 3). On a month-to-month basis, intellectual property fell 0.1% in November, while manufacturing intellectual property remained stable. North of the border, US intellectual property fell 0.1% in December after rising 0.7% in November. The three-month moving average for US intellectual property rose 0.6% in December. The correlation between intellectual property in Mexico and the United States has increased dramatically with the rise of intra-industry trade between the two countries since the early 1990s.
Retail sales up in November
Mexico’s real retail sales index rose 0.6% based on a three-month moving average through November (Chart 4). On a month-to-month basis, retail sales rose 0.9% in November, slightly ahead of October’s 0.2% growth. November retail sales rose 0.3% from pre-pandemic levels in February 2020.
Job growth strengthens
Employment in the formal sector, i.e. jobs receiving government benefits and pensions, increased by an annualized 5.6% (93,600 jobs) in December, after increasing by 1, 9% in November (Chart 5). Year over year, employment rose 4.2% in December. Total employment, accounting for 56 million workers and including jobs in the informal sector, rose 9.9% year-on-year in the third quarter of 2021 based on the most recent data. The unemployment rate in December was 4.0%, up slightly from 3.9% in November.
The peso gains ground against the dollar
The Mexican currency averaged 20.5 pesos to the dollar in January, up 1.9% from December. However, the peso is down 8.0% from the pre-pandemic level in February 2020 (Chart 6). The peso has been under pressure due to persistently higher average inflation in Mexico than in the United States and, more recently, heightened uncertainty regarding domestic and global growth.
Downward trends in foreign public debt
The three-month moving average of Mexican government securities held by foreigners fell to 17.7% in December (Chart 7). On a monthly basis, the share of Mexican government securities held by foreigners reached 18.1% in December, up slightly from October and November, but still close to a 10-year low. The magnitude of nonresidents’ holdings of public debt is an indicator of Mexico’s exposure to international investors and a sign of confidence in the Mexican economy.
Inflation remains high
Mexico’s consumer price index (CPI) rose 7.4% in December from the previous 12 months, unchanged from November’s growth rate (Chart 8). Core CPI inflation (excluding food and energy) rose 5.9% in December compared to the previous 12 months. For the fifth time in 2021, Banco de México has raised the benchmark interest rate. The benchmark interest rate was raised by 50 basis points in December and is now 5.5%. In the public announcement accompanying the interest rate decision, the central bank cited continued global and domestic inflationary pressures and long-term inflation expectations above target as factors in the increase.
The consensus GDP forecast is calculated as a fourth-quarter/fourth-quarter growth rate. However, based on average quarterly year-over-year growth, the forecast is 2.2% for 2022. ). The survey period was January 23-28.
about the authors
Cañas is a senior business economist and Coia is a research analyst in the research department of the Federal Reserve Bank of Dallas.