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 News Around the Republic of Mexico | May 2008 
Calderon Spending on Roads, Dams Helps Mexico Dodge US Slump
 Jens Erik Gould - Bloomberg
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 |  | We're in the middle of a reacceleration of the Mexican economy precisely at the moment that the U.S. economy is weakening.
- Gray Newman, Morgan Stanley |  | | | |
Felix Barron worked for the minimum wage in the lumber yards of El Salto, Mexico, because it was the only job he could find. When his 45 pesos ($4.34) a day salary no longer supported his family, he moved 600 miles to Ciudad Juarez and the auto-parts factories on the U.S. border.
Now, a new 12 billion peso highway project has brought Barron back home to his wife and daughter, where he manages 10 workers and earns five times what he made cutting wood.
"This is an opportunity to better oneself," said Barron, 37. "We've never had this kind of work here before."
Mexico is challenging the wisdom that a U.S. slowdown means tough times for its southern neighbor. President Felipe Calderon plans to spend 2.5 trillion pesos in public and private funds on roads, energy, airports, dams and ports during his six-year term. The government says the first projects are already stimulating local economies, helping Mexico weather the slump in the U.S., which buys 80 percent of its exports.
"This is the big economy story of the year," said Gray Newman, chief Latin America economist at Morgan Stanley in New York. "We're in the middle of a reacceleration of the Mexican economy precisely at the moment that the U.S. economy is weakening."
While U.S. first-quarter growth was only 0.6 percent, Mexico's seasonally adjusted annualized rate was 4.6 percent, estimates Juan Trevino, chief economist for HSBC Holdings Plc in Mexico City. The Bolsa stock index has gained 5.4 percent this year compared with a 5.3 percent decline in the S&P 500.
Budget Surplus
The most recent reports for Mexico's government budget surplus, trade balance and employment all outpaced the median estimates of economists surveyed by Bloomberg.
"I think things have changed, and it has surprised all analysts, including myself," said Paulo Leme, Goldman Sachs Group Inc.'s managing director for emerging markets.
Finance Minister Agustin Carstens said May 12 new construction will add 0.6 percent a year to gross domestic product through the end of Calderon's term in 2012, partly because of the jobs it will create.
The new building projects will also boost trade and private investment by increasing energy supplies, cutting transportation times and making ports more accessible, the government said.
Anti-Nausea Pills
The highway through El Salto connects the cities of Durango and Mazatlan and includes what will be the highest bridge in Latin America. It replaces a road with so many dramatic mountain curves, locals take anti-nausea pills before driving on it.
Mexico ranked 61st out of 131 countries in the infrastructure category of the World Economic Forum's 2007-2008 Global Competitiveness Report, below China and Botswana.
Calderon's planned expenditures are 50 percent higher than the amount Vicente Fox spent on such projects during 2000-2006, when he was president. That's largely because profits from record oil prices are adding what Leme estimates will be an extra $20 billion to the government's budget this year. The average price for Mexican crude rose 73 percent to $83.10 a barrel in the first quarter compared with a year ago.
Mexico is the world's eleventh-largest crude producer. The state-owned energy company, Petroleos Mexicanos, accounts for about one-third of the approved 2008 budget of 2.57 trillion pesos.
Rising Demand
Mexico is also benefiting from a U.S. dollar that last month traded at the lowest level compared with the euro since Europe's currency was introduced in 1999. That makes U.S. products cheaper overseas, boosting demand from American exporters including General Motors Corp. and Chrysler LLC for goods made in Mexico.
The drop in the dollar is also increasing demand for Mexican companies' exports because the peso is strongly tied to the dollar. Total shipments to countries other than the U.S. grew 30 percent last year and 26 percent in the first quarter compared with the year-earlier periods, the Banco de Mexico said.
Mexico may still suffer some impact from the U.S. slowdown in the second and third quarters, Deputy Finance Minister Alejandro Werner said in a May 8 interview with Bloomberg Television.
Last month, the central bank cut its 2008 growth forecast to between 2.4 percent and 2.9 percent from a range of 2.75 percent to 3.25 percent. The economy expanded 3.2 percent last year and 4.9 percent in 2006.
Plant Closing
Alcoa Inc., the world's third-largest aluminum company, announced May 12 that it will shut its operations in Puebla, Mexico, during the third quarter, eliminating all 1,400 jobs because of lower demand.
Mexicans working abroad reduced money transfers to their families by 2.9 percent to $5.35 billion in the first quarter compared with last year as the U.S. housing slump squeezed construction, the biggest employer of Mexico's migrants.
Infrastructure spending may also spur inflation, which is currently the lowest of Latin America's top 12 economies. In April, Mexico posted the biggest annual increase in consumer prices in almost three years as costs surged for food and housing.
Even if the economy slows, the government is predicting it won't be for long. The Finance Ministry forecasts growth will quicken to a three-year high of 4 percent in 2009, partly because of higher oil prices and the continuing impact of Calderon's building program.
"We could all be underestimating GDP this year," Morgan Stanley's Newman said.
To contact the reporter on this story: Jens Erik Gould in El Salto, Mexico, at jgould9(at)bloomberg.net |
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