Mexican Economy Shows Progress Heading into 2013
January 23, 2013
Manufacturing in Mexico continues to display signs of positive growth, especially in the automotive and consumer products industries. The country posted an increase in their Manufacturing Purchasing Managers Index (PMI) for the final month of 2012. The PMI index rose by 1.5 points over November to a value of 57.1 (anything over 50 in the index indicates growth for manufacturing in Mexico. It is now believed by analysts that the total 2012 growth rate for the economy will be a healthy 4%. The increase in the PMI is the highest that index has been since Mexico began reporting it in April 2011. By comparison, the PMI for the United States rose by 1.2 points to 50.7 after the manufacturing sector began to shows signs of contraction in November. The United States is Mexico’s largest trading partner and accounts for 80% of their exports. Given the sluggishness of the US economy, the growth rate in Mexico is projected to slow down this year but remain at 3.5%. Inflation has also been slowing down in the months following the 2.5 year high that was reported back in September.
Mexican equity markets have also experienced gains with their composite index rising 1.24% to 44,249.59 points immediately following the fiscal cliff deal that President Obama reached with the Republican Party. The news of manufacturing in Mexico was largely overshadowed by Mexican concerns that failure on the part of the US government to avoid a fiscal cliff deal would result in another recession and pull down the Mexican economy, given their dependence on US consumer.
Another area important to continued Mexican growth is structural reform in the areas of taxation and energy. Historically, the Mexican population does not have a high rate of participation in the payment of taxes. Mexican President Enrique Peña Nieto vowed to tackle the two areas of structural reform in Mexico in sequential order starting with energy and then taxes. President Nieto will face an uphill battle with the legislature to enact tax reform laws and an improved means of collecting them. However, he is a political centrist and that may allow him to build the necessary framework within Mexico’s political establishment. President Enrique Peña Nieto is a member of the political ruling party called the PRI who dominated Mexican politics for decades until the year 2000. How well President Peña handles the political battle for energy reform will be a strong indicator of the direction for Mexico manufacturing growth this year. The Mexican legislature passed significant reform in their labor laws just prior to Peña being sworn into office and that portends to an atmosphere of reform, which will benefit the president as he tackles the larger issues facing the economy.