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 Business News | May 2008 
Mexico's Non-US Bound Exports Shielding Economy
 Jason Lange - Reuters
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Puebla, Mexico Mexican exporters, long dependent on American consumers, are ramping up sales to once-ignored markets such as Europe and Brazil and are helping shield Mexico's economy from a feared U.S. recession.
Volkswagen's plant in Mexico, built four decades ago just east of the Mexican capital, once focused on selling its Jetta and Golf models to Americans.
But last year, the plant sent more cars to Europe than to the United States for the first time. The company expects Americans to buy less than a third of the automobiles made in the plant in 2008.
We are in a much better position, considering that there are markets like the United States where demand is falling, said Thomas Karig, a Volkswagen spokesman.
Across Mexico, producers of everything from heavy machinery to fuse boxes are boosting sales to markets other than the United States.
Growth in exports to those countries now far outpaces expansion in U.S.-bound exports, and America's slice of Mexican exports has dropped to about 80 percent from 90 percent a decade ago.
That has helped Mexico so far this year to largely shrug off a major slowdown in the United States, where employment is dropping and factory activity is shrinking.
It's a very good development, said Bertrand Delgado, a economist at IDEAglobal in New York. If the downturn in the United States lasts just through the second quarter as many expect, the impact in Mexico will to some extent be contained.
It could still hurt. Delgado and other economists note that with four out of five widgets still ending up in the United States, Mexico's economy will likely still slow this year as its northern neighbor languishes. The government forecasts growth of 2.8 percent this year, down from 3.3 percent in 2007.
The last time the U.S economy contracted, in 2001, Mexico slipped into a recession that put hundreds of thousands of people out of work.
For now, production in Mexico's factories, which accounts for about a quarter of economic output, has been robust. Industrial production in February surged 5.4 percent, its fastest pace in more than a year as the economy expanded 5.8 percent.
Mexico's economy is also getting a boost this year from record oil prices. Oil sales account for about 40 percent of government revenues, and soaring prices are a windfall fueling hefty investment in public works such as highways and sea ports.
UNLIKELY HERO
An unlikely hero behind Mexico's success at casting its wares further across the globe has been an increasingly weak U.S. dollar.
While exporters in Germany and Brazil fret over how a weak dollar makes their products more expensive for Americans, Mexico's currency has stayed relatively stable against the greenback and has lost about a quarter of its value against both the euro and Brazil's real since the end of 2005.
That makes refrigerators and cars made in Mexican factories cheaper for consumers in Berlin and Paris.
It makes it harder for us to travel to Europe on vacation, lamented Rodolfo Ponce, who helps oversee Japanese auto-part manufacturer Takata's factories in Mexico.
But selling things to Europeans is a lot easier, he added with a laugh.
Ponce said Takata's shipments to non-U.S. markets have surged eight-fold in the last four years as the company sells airbags and seatbelts in Brazil, Japan and Germany. Shipments to the United States have been stagnant during the period, he said.
Karig noted that Volkswagen has boosted production in Mexico to take advantage of the country's trade agreements with the United States and the European Union.
Of course the exchange rate is helping us out right now, he said. But we can't build our strategy on that because we don't know how long (the weak dollar) is going to last. |
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