disappoints in May but upward trend remains intact
economic activity increased 3.0% over the same month last year, according
to the global indicator for economic activity (IGAE, Indicador Global de
la Actividad Económica). The actual reading was below expectations,
which had the economy growing at an annual 3.6% pace and was also below
the 4.1% annual growth rate recorded in April. A month-on-month
comparison, confirms the weaker reading. According to seasonally
adjusted data, the economy contracted a strong 0.51% over the preceding
month, following on a 0.68% monthly expansion in April. Thus, the
much hoped for recovery in the Mexican economy remains elusive. That
said, the upward trend remains intact. In May, the annual average
growth rate inched upwards 0.2 percentage points from 2.4% in April to
2.6%, the seventh consecutive increase.
sectors growing at slower pace
In May, all
sectors experienced slowdowns compared to the preceding month.
Agriculture grew at an annual rate of 2.3% (April: +6.6% year-on-year) and
services added 3.6% over the same month last year (April: +4.3% yoy).
The industrial sector increased 2.1%, barely more than half the 3.9%
expansion observed in April. The slowdown in the industrial sector
was broad-based and actually seized all four sub-sectors surveyed by the
National Statistical Institute (INEGI), namely mining, industrial
manufacturing, construction and electricity, gas and water. Mining
expanded a paltry 1.3% over May 2003, following on 3.2% annual growth in
April. The slowdown was due to slower growth in oil and gas output
as well as a deterioration in non-oil mining production, which actually
slipped into negative territory following moderate but positive growth in
industry benefits from robust U.S. but recovery will remain moderate
construction halved from a strong 6.3% observed in April to 3.2% and the
electricity, gas and water sector slipped slightly into the red (-0.1%
year-on-year) following 1.5% growth in April. The
all-important industrial manufacturing decelerated at a lesser pace, as
the sector still added 2.2% after 3.6% growth in April. Nevertheless,
the actual development contrasted with expectations. The Consensus
Forecast had expected an acceleration to 3.9% growth, amid promising signs
emanating from rising external demand. In the past three years, deep
recession has overshadowed the industrial sector, which has dragged down
the overall economy. Moreover, during the past business cycle,
the sector seemed to have decoupled from the U.S. manufacturing industry,
which itself had lagged behind the general economic recovery.
However, recent data suggest that Mexico is following the increasingly
promising developments in the U.S. manufacturing industry. In July,
the Institute for Supply Management (ISM) Purchasing Managers' Index (PMI)
indicated that economic activity in the U.S. manufacturing sector grew for
the 14th consecutive month. The PMI for July registered an increase
of 0.9 percentage points compared to the June reading of 61.1 points.
With 62.0 points in July, the PMI has now been above 60% for nine
consecutive months, well above the 50-point threshold that separates an
expansion from a contraction. This is the longest period of growth
above 60% since the early seventies and if the recovery in U.S.
manufacturing persists through the second half of the year, the tentative
recovery of the Mexican manufacturing industry will take a firmer hold.
In fact, Consensus Forecast panellists expect the entire industry to grow
by 4.4% in the second half, up a full percentage point from the growth
level observed in the first half of this year. However, the
expansion is likely to remain at that level. The glorious past, in
the wake of the recovery from the peso crisis in 1995, when the industrial
sector had expanded above 7% per year before entering in crisis 2001, is
unlikely to return, as Mexico continues to lose market share in the U.S.
economy to competitors in China and Southern Asia.