Mexico’s economic growth picks up, but outlook weakens


Jesus Cañas and Juliette Coia

May 23, 2022

May 2022 Economic Report
GDP, real
January–March 22
Employment, formal
April 22
April 22
April 22
3.6% q/q 97,000 jobs m/m 7.6% y/y 20.1

Mexico’s GDP grew 3.6% at an annualized rate in the first quarter of 2022, an increase from dismal growth of 0.1% in the fourth quarter. Nonetheless, first-quarter GDP growth came in below analysts’ expectations of 4.6%. Mexico’s GDP outlook for 2022 continues to deteriorate, primarily due to slowing global economic growth, persistent supply chain bottlenecks, rising inflation and policy tightening monetary. Banco de México’s consensus GDP growth forecast for 2022 fell again in April to 2.1% (Q4/Q4) (Table 1). Inflation rose further due to price pressures related to energy and raw materials.

Table 1: Consensus forecasts for growth and inflation in Mexico in 2022

April March
Real GDP Growth (Q4/Q4) 2.1 2.3
Real GDP (average year/year) 1.7 1.8
IPC (Dec. 22/Dec. 21) 6.8 5.8
Exchange rate — pesos/dollar (end of year) 21.1 21.3
NOTE: CPI refers to the Consumer Price Index. The survey period was April 22-28.
SOURCES: Survey on the Expectativas de los Especialistas en Economía del Sector Privado: Abril de 2022 (press release on economic expectations, Banco de México, April 2022).

The latest data available shows that industrial production, exports, retail sales and employment have increased, while remittances have declined. In April, the peso appreciated against the dollar, but inflation remained high.

Production increases in the first quarter of 2022

According to preliminary estimates, Mexico’s GDP in the first quarter increased by 3.6% at an annualized rate (Chart 1). The goods-producing sector (manufacturing, construction, utilities and mining) and the service sector (wholesale and retail trade, transportation, business services) increased by 4.4%, while agricultural production decreased by 7.6%.

Chart 1

Industrial production is growing

The three-month moving average of Mexico’s industrial production (PI) index, which includes manufacturing, construction, oil and gas extraction and utilities, improved in March from february (Chart 2). On a month-to-month basis and on an unsmoothed basis, intellectual property rose 0.4% in March. North of the border, US intellectual property rose 1.1% in April after rising 0.9% in March. The correlation between intellectual property in Mexico and the United States has increased considerably with the boom in intra-industry trade between the two countries since the early 1990s. The Mexican manufacturing sector could see some slowdown in the second quarter, in especially if US consumer demand slows due to rising prices and higher interest rates.

Chart 2

Exports pick up as oil prices rise

The three-month moving average of total exports rose 1.2% in March, with oil exports up 9.2% and the much larger category of manufacturing exports up 0.7% (Chart 3). Month-over-month and on an unsmoothed basis, total exports fell 3.9% in March, with oil exports rising 13.7%, but exports of manufactured goods falling 5 .1%. The recovery in oil prices has contributed to the recent growth in oil exports as Mexico’s oil production has been flat since mid-2021. Mexico’s total real monthly exports in March were 12.8% higher than pre-pandemic levels (February 2020) and 9.7% higher than the previous 12 months.

Chart 3

Retail sales growth

Mexico’s real retail sales index rose 0.6% month-on-month based on a three-month moving average through February (Chart 4). On a month-to-month basis and on an unsmoothed basis, retail sales rose 0.8% in February, the same rate as in January. Retail sales reached pre-pandemic levels (February 2020) in October 2021.

Chart 4

Payroll increases in April

Formal sector employment – jobs receiving government benefits and pensions – rose 5.7% (97,000 jobs) at an annualized rate in April after rising 5.1% in March (Chart 5). Year-over-year employment growth was 4.7% in April. Total employment, accounting for 56.6 million workers and including jobs in the informal sector, rose 6.2% year-on-year in the fourth quarter of 2021. The unemployment rate in March was 3 .5%, against 3.7% in February. Employment in Mexico returned to pre-pandemic levels in September 2021, although GDP remains 1.6% below its pre-pandemic level.

Chart 5

The peso gains ground against the US dollar

The Mexican currency averaged 20.1 pesos to the dollar in April, up slightly from March (Chart 6). However, the peso is still down 6.3% from its pre-pandemic level in February 2020. The peso has been under pressure due to high inflation and heightened uncertainty regarding domestic and global growth.

Chart 6

Remittances to Mexico down in 2022

The three-month moving average of actual remittances to Mexico fell for the third consecutive month in March, falling 2.4% from February (Chart 7). On a monthly and unsmoothed basis, remittances fell by 4.2%. Most likely, remittance flows to Mexico are slowing due to high inflation in the United States and elsewhere, eroding disposable income, including funds for remittances. Remittances to Mexico peaked in November 2021. The depreciation of the peso between February and April 2020 contributed to record transfers of $50 billion in 2021, as did Mexican migrants abroad who sent more money to help loved ones buy food or cover basic expenses during the pandemic.

Chart 7

The share of foreign public debt is falling

The three-month moving average of Mexican government securities held by foreigners fell to 17.7% in April, down 1.2% from its value in March (Chart 8). 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. It should be noted that the metric has been on a downward trend since peaking in early 2015.

Chart 8

Inflation rises again

Mexico’s consumer price index (CPI) rose 7.6% in April from the previous 12 months, rising at a slightly faster pace than in March (Chart 9). Core CPI inflation (excluding food and energy) rose 7.1% in April over the previous 12 months. In May, Mexico’s central bank raised the benchmark interest rate to 7%, raising it by 50 basis points for the fourth consecutive time since December. In the public announcement accompanying the interest rate decision, the central bank cited several factors for the increase, including continued global and domestic inflationary pressures associated with the pandemic; increase in the prices of energy, agricultural and livestock products; and the intensification of geopolitical unrest.

Chart 9

about the authors

Jesus Canas

Cañas is a senior business economist in the research department of the Federal Reserve Bank of Dallas.

Juliette Coia

Coia is a research analyst in the research department of the Federal Reserve Bank of Dallas.

The opinions expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.


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