Mexico: Stronger than expected 4Q2016 and December real GDP figures – Goldman Sachs

Alberto Ramos, Analyst at Goldman Sachs, notes that the Mexican real GDP growth accelerated to a better than expected 2.4% yoy in 4Q2016, up from 2.1% yoy 3Q2016.

Key Quotes

“Similarly, on a seasonally adjusted basis, annual real GDP growth accelerated to 2.4% yoy sa during 4Q2016, from 2.0% yoy sa during 3Q2016. The final 4Q annual growth figure was stronger than the 2.2% yoy flash estimate.”

“During the last 10 quarters (3Q2014 through 4Q2016) real GDP growth was remarkably stable: average 2.5% yoy [min 2.1% yoy; max 2.8% yoy].”

“Overall, real GDP grew 2.3% in 2016, downshifting from 2.6% in 2015, driven by the solid 3.4% expansion of the tertiary sector (3.5% in 2015), and the 4.1% expansion of the primary sector. The biggest disappointment in terms of activity came from the secondary sector, which recorded no growth in 2016, following the underwhelming 1.0% expansion in 2015. Within the secondary sector we highlight the growing drag of mining (-6.4% in 2016 vs. -4.6% in 2015) driven by the poor performance of the oil sector. Furthermore, the construction and manufacturing sectors also lost buoyancy in 2016 (growth downshifted from +2.5% and +2.5%, respectively in 2015, to +1.8% and +1.3%, respectively in 2016).”

“Going forward, we expect growth to decelerate and the engines of growth to rebalance—with higher contributions from manufacturing and net exports and less thrust from the services and private and public consumption. The industrial/manufacturing sector should benefit from a more competitive exchange rate, but subdued US external demand and eventual restrictions in accessing the US market will likely prevent a more significant recovery of the secondary sector in the near term.”

“Finally, last but certainly not least, uncertainty with regards to the overall US administration policy mix is likely to have an immediate negative impact on activity by rendering domestic economic agents more defensive: important investment decisions may be postponed, scaled down or even cancelled, particularly in export-oriented sectors given the uncertain terms under which Mexican exporters will have access to the US market, and in the face of an uncertain and risky macro profile, informed consumers may increase precautionary savings by limiting the demand for durable goods.”