Fox inherits strong economy.  First quarter numbers for demand and supply, released in mid-June, confirm that the Mexican economy is expanding at full throttle.  During the first quarter, demand increased a whopping 11.9% compared to the same period the year before, reflecting the strong GDP growth figures released earlier.  The external sector continued to be the prime driver behind strong demand, increasing by 17.0% but other sectors have also impelled the increased dynamism currently experienced by the Mexican economy.  Investment expanded markedly in the first three months growing 11.6% over the same period last year, compared to 8.1% in Q4 1999 and 5.1% in Q3 1999.  Strong investment growth continued in April (+6.8% year-over-year) and provides for additional capacity, which should help to disperse fears of an overheating of the Mexican economy.  Private consumption also picked up considerably in Q1 (up 9.2% versus 7.6% in Q4 1999) and the growth rate for government consumption more than tripled to 5.0% as the oil bonanza provided for additional income. 

Dip in industrial production growth.  Industrial production increased at an annual rate of 5.1% in April, considerably below the 8.3% reading in March and also well below market forecasts, which expected the expansion to reach 6.5%.  The lower than expected performance resulted from slower growth in the manufacturing industry, which expanded by 4.6% despite continued strength in the maquiladora (in-bond manufacturing) industry.  The weakness in the domestic manufacturing industry was in part prompted by the lower number of days worked in April compared to the same month in 1999.  Electricity, gas and water grew 5.8% whereas construction and mining grew at rates of 7.2% and 5.8% respectively.  Infrastructure-related works in the transportation and water utility sector spurred growth in the construction sector.  Mining profited from higher metals extraction, particularly copper, silver and lead, whereas oil and gas exploration contracted in volume. 

Politics drive peso. The peso was driven more by events in the political arena related to the 2 July presidential and congressional elections than by economic considerations.  Political uncertainty sent the Peso downward from 9.5 pesos per US$ at the end of May to over 10 pesos per US$ on 27 June.  However, owing to the optimism generated by the electoral outcome, the peso quickly regained the lost ground in early July and firmed to 9.53 pesos per US$ by 7 July.  In the future, the development of the peso should again be driven more by economic considerations such as inflation, which further dropped from 9.5% in May to 9.4% in June. 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Mexico.  For more details please click here.

For five-year forecasts, please click here.