Mexico Economy Delivers Robust Growth Adam Thomson - Financial Times
go to original August 17, 2012

The Mexican economy put in a strong performance during the second quarter of this year, growing 4.1 per cent compared with the same period in 2011.

Some news agencies were quick to seize on the lower-than-expected figure (the consensus forecast from analysts was 4.3 per cent) as a sign of weakening economic activity in Latin America’s second-largest economy.

But there are several important details to suggest that there is no need to start readjusting year-end growth estimates just yet.

The first, and most important, is that the latest figures come against a backdrop of increasing global uncertainty. Given the continuing problems in Europe and expectations of a deceleration in the US industrial sector, Mexico’s GDP figures look more than robust – particularly when you consider how dependent the Mexican economy is on its northern neighbour as a market for its manufactured exports.

There are at least two reasons for Mexico’s resilience to worsening international conditions. To start with, the economy received a boost thanks to the July elections, which brought about an increase in public-sector spending at the municipal, state and federal levels of government.

But there are also plenty of signs that the domestic economy is starting to play a more active role in Mexico’s growth, which, since the country’s recovery from the 2009 recession, has been based largely on the export sector.

Thursday’s figures show that the services sector expanded 1.1 per cent during the second quarter compared with the first three months of the year on a seasonally-adjusted basis. That stacks up nicely when you consider that the same figure was just 0.7 per cent between January and March.

This is supported by healthy figures on the creation of formal jobs, retail sales, the expansion of bank credit and consumer confidence.

As a note by Barclays Emerging Market Research concluded on Thursday, the figures were “an outstanding performance in a very complicated global context”.

With likely tougher times ahead for the US industrial sector, that pick-up in the domestic growth component of Mexico’s economy will almost certainly offset a softer performance of its export sector in the coming months.

Barclays has a bullish 4 per cent estimate for full-year GDP growth in 2012 compared with 3.5 per cent in the case of Mexico’s government. And while it admitted that the results on Thursday added some downward pressure to its forecast, it also said that it saw no reason to start changing that figure yet.

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