Mexico GDP +5.5% in 2010

The numbers are in, and they show that Mexico's GDP rebounded at a stronger-than-expected pace in 2010, surging by 5.5% in real terms, according to a report last week from the National Statistics Institute (INEGI). One year ago, a central bank survey rendered an average forecast of 3.9%, so the surprise has come on the upside. But even with that bang-up performance, the Mexican economy remains smaller today than before the Great Recession.

At this point, INEGI has only released GDP data in constant terms, so we won't know the gross domestic product in dollar terms (or, for the matter, in current peso terms), until additional information is published this week. But suffice it to say that according to the World Bank, Mexican economic output totaled $1.1 trillion in 2008, before a staggering recession knocked it back down to $875 billion. Heavily dependent on the U.S. consumer, and the U.S. automotive sector in particular, Mexico was one of the hardest hit economies on the planet in 2009, contracting by a wrenching 6.1% rate. (The larger 20% magnitude of the dollar-based plunge in the size of total GDP reflects this 6.1% drop combined with the steep depreciation of the peso exchange rate in 2009.)

Incidentally, prior to the Great Recession, Mexico was one of 14 national economies ranking in the $1-trillion GDP club. Once current price data are published this week, they will almost certainly show it regaining that status. The peso is now stronger than it was at the end of 2008, and the 2010 GDP rebound brought the size of the economy almost back to pre-recession levels (0.9% lower).

Private consumption powers the overall Mexican economy. Roughly speaking, services accounts for just under two-thirds of output, industry a little more than one-third, and agriculture picks up the 3.6% slack between the two. The services sector grew by 5.0% after shrinking 5.3% in 2009.

Within services, retail dominates. A consumer recovery sparked a roaring 13.3% retail rebound in 2010. Other services, such as real estate, banking, media, and so forth, all performed much more modestly. Besides retail, only mass media and transportation services outperformed the headline growth rate of 5.5%. Two industries, health services and profession and scientific services, actually continued to decline.

The export-linked manufacturing industries merit special mention in any discussion of the Mexican economy. Though the industrial sectors as a whole account for about one-third of GDP, as noted above, the manufacturing industry dominates. The factory economy generated one-fifth of the value of GDP – contributing more even than retail. It took a beating in the past couple of years. Not only did the Great Recession let the air out of U.S. demand for Mexican-made goods, the U.S. automotive market plunged off a cliff. Mexico is now the largest foreign supplier of automobiles to its northern neighbor, having just surpassed Japan. As a result, in 2009 industry collapsed by 7.4%, a titanic calamity that forced hundreds of plants to close and tens of thousands of workers to lose their jobs. In 2010, though, the automotive industry pulled a dramatic turnaround of the kind only Hollywood stunt drivers seem to pull off: It fully doubled output. In turn, manufacturing boomed back by 9.9%.

Finally, the relatively small agriculture sector reaped a healthy 5.7% in output, versus a 2.0% decline in 2009. Farming has its own special set of problems in Mexico. The country achieved record exports of $18.5 billion in 2010 – surpassing tourism as a source of foreign currency revenue. Nearly a tenth came from tomatoes alone. Half a billion dollars came from cattle exports. This is how it works: Mexico imports billions of dollars per year in grain to feed livestock, exports them alive and in one piece, and then buys back billions of dollars of processed meat from abroad. Meanwhile, the corn-dependent population is teetering on the verge of its second tortilla crisis in less than a decade thanks to a week of freezing weather. But that's fodder for a future column.

Returning to the macro picture, results from the fourth quarter pointed to a favorable direction for future growth. In the October-to-December period, GDP expanded by 5.1% in seasonally adjusted, annualized real terms from the previous three months. That outstripped the 3.2% rate of the third quarter. Monthly data showed some slowing in December, but the overall momentum looks strong: The Bank of Mexico last week upped its estimate for 2011 economic growth to expand by between 3.8% and 4.8% this year from 2010, compared with a previous forecast range of 3.2% to 4.2%.