With domestic drivers
such as progress on economic reforms missing, the country remains
precariously dependent on its external sector to revive sluggish growth.
This means Mexico is facing an uphill battle amid increasing
competition in the United States from China and other Asian manufacturing
hubs and an exchange rate that many consider as being not sufficiently
competitive to stave off the new competition.
However, recent evidence suggests that the external sector is indeed
reviving, as healthy U.S. growth is finally being transmitted to Mexico.
picks up speed in fourth quarter
complete data set for national accounts data confirmed the 2.0% annual
fourth quarter growth reported last month. The reading represents an
improvement compared to the 0.6% growth registered in the third quarter
and confirms that the Mexican economy bottomed out in the second quarter
2003 when economic activity was virtually unchanged over the same period
in the prior year.
exports compensate for weaker consumption
improvement in fourth quarter growth compared to the preceding quarter was
mainly driven by exports and a lower reduction in inventories. The
domestic side of the economy actually deteriorated. Growth of total
consumption dropped from 4.1% in the third quarter to 3.1% in the fourth.
The deterioration was entirely due to private consumption. Growth in
government consumption, on the other hand, accelerated slightly, as the
government had more spending power in the wake of increased revenues from
the higher oil price. Gross fixed investment grew at a lacklustre
0.8%. Investment in domestic machinery and equipment as well as in
construction improved over the third quarter but the positive impact was
contrasted by imported machinery and equipment, which reverted from a 1.9%
expansion in the third quarter to a 0.5% contraction in the fourth quarter.
The external sector exhibited very positive developments, as demand for
Mexican exports began to grow again following on two consecutive quarters
with declines. The growth rate of exports is still a far cry from
past double-digit rates that characterised the external sector in the six
years following the inception of the North American Free Trade Agreement
(NAFTA) in 1994. Nevertheless, the up tick observed in the fourth
quarter comes at a moment of increased concern over whether the Mexican
exports can withstand increased competitive pressures from China and other
economic boost wanes in January
development in the fourth quarter that profited from a year-end boost did
not carry over into this year. In January, economic activity
increased 2.1% over the same month the year before, according to the
global indicator for economic activity (IGAE, Indicador Global de la
Actividad Económica). The actual reading was in line with
expectations but remained shy of the buoyant 3.9% growth observed in
December. In fact, according to seasonally adjusted data, the
economy contracted 0.63% over the preceding month, following on 0.80%
monthly growth registered in December and ending a string of four
consecutive monthly expansions. Agriculture expanded 4.2% and
services added 2.6% over the same month last year. Services profited
from stronger activity in communications, real estate, financial services,
commercial activities and educational services. The industrial
sector expanded 0.8% over January 2003, just a third of the 2.4%
registered in December, which had raised hopes that the robust recovery in
the United States was finally being transmitted to the Mexican economy.
In particular, the manufacturing industry, which accounts for the bulk of
industrial activity and which holds the key to growth of the entire
Mexican economy, reverted from the first expansion in eight months in
December back to negative numbers in January. Within industry, only
mining and electricity, gas and water improved over December.
Construction and the maquiladora industry (in-bond manufacturing)
deteriorated compared to December. Finally, the growth rate in
investment activity dropped to almost half the December pace in January
(+1.7% year-on-year) as the expansion of investment in machinery and
equipment decelerated to just 0.5%.