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 Business News | April 2007 
Mexican Economy Seen Hit by US Slowdown
 Greg Brosnan - Reuters
Mexico City - Slowing U.S. demand for manufactured exports is forcing Mexican factories to scale back production, and may push Mexico's economic growth well below the government forecast for the year.
The latest Mexican industrial data last week showed output unchanged in February from a year earlier, while manufacturing output slipped 0.1 percent, and even the construction industry saw activity slow.
Mexican gross domestic product grew 4.8 percent last year but the government expects it to expand only 3.6 percent in 2007 as the economy of the United States, the destination for almost 90 percent of the country's exports, cools off.
With some economists expecting a more pronounced and prolonged U.S. downturn than previously predicted, Mexico's latest industrial output data has strengthened a view among many that the government will soon have to cut its forecast.
"The Mexican economy is very weak," said Eugenio Aleman, an economist with Wells Fargo Bank in Minneapolis, who believes Mexican GDP will likely grow between about 2.0 and 2.5 percent this year.
Mexican auto exports in particular have fallen for four consecutive months, and Aleman said GDP growth could fall as low as 1.0 percent if U.S. vehicle demand did not soon recover.
"There's probably something they know and I don't," he quipped with regard to the government's official growth forecast. "Everywhere you look, the numbers are not good."
Ricardo Amorim, an economist at West LB bank in New York, said in a research note he lowered his estimate for first quarter growth to 2.5 percent from 2.8 percent based on the poor industrial output figures.
The government, however, expects growth of between 3.0 and 4.0 percent for each of the first two quarters of the year.
ECONOMIES JOINED AT THE HIP
Factories producing manufactured goods like cars and machinery for the United States are the main engine of Mexico's economy but materials like glass and cement for the U.S. housing industry also weigh heavily.
Those sectors depend heavily on demand from the worst hit areas of the U.S. economy - manufacturing and housing.
"It's going to be very difficult for Mexico to avoid the difficulties that the United States is in," said Christian Stracke, an economist with research firm Credit Sights. "Mexico is right there in the middle of the problems that the United States is experiencing."
Stracke believes the Mexican economy will grow between 2.5 percent and 3.0 percent.
While consumer spending is not as important to Mexico's economy as it is to that of the United States, it has been picking up the slack left by a weakened industrial sector.
Cheaper credit has kept retail sales growing, albeit tepidly, and fueled a construction boom in evidence at least until February, by giving more Mexicans access to mortgages.
Strength in consumption led Finance Minister Agustin Carstens - prematurely according to many economists - to say Mexico was better protected than before from U.S. downturns.
However, analysts say much of that consumer spending power comes from remittances sent home by Mexicans living in the United States, and say declining growth in the amount of funds being sent back, spells problems ahead.
Morgan Stanley said in a report that recent data showing declining remittance growth "reinforce our cautious view on Mexico's growth prospects in 2007."
"Much of the growth in the Mexican economy can be attributed to private consumption ... one of the biggest reasons for this has been remittances," said Aleman. "Private domestic consumption is going to start showing its ugly face in the next couple of months." |
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