MexECON Blog

October Exports Rise 19.8 Percent YOY

In an initial estimate, Mexico's October merchandise trade deficit expanded dramatically to a seasonally-adjusted $595.2 million.  In addition, deficits for the preceding four months were all revised upward, with the September deficit now estimated at $108.0 million and the August deficit estimated at $277.2 million.  According to the report, from the national statistics agency INEGI, Mexican exports rose 1.4% in October, easily reversing their revised decline of 0.5% in September.  However, imports jumped 3.3%, erasing their revised September decline of 1.1% and marking their biggest jump since March.  On an unadjusted basis, Mexican exports in October were up 19.8% from the same month one year earlier, while imports were up 24.9%.

Manufactured goods make up the vast majority of Mexican exports, and they were up 20.3% year-over-year in October.  For much of the last year, the rise in Mexican manufacturing exports has come in large part from the auto sector.  In October, however, exports of trucks, autos, and auto parts were only modestly stronger than overall manufacturing exports, and they accounted for less than one-third the increase in all manufacturing exports.  Other manufacturing exports posting strong increases included steel and metal products, food and beverages, and industrial equipment.  Petroleum products are the second-most important category of Mexican exports, and they were up 16.3% year-over-year in October.  On a volume basis, Mexican crude oil exports came in at 1.377 million barrels per day, up 11.2% from October 2009.  On a value basis, the average export price for Mexican crude oil rose to $74.30 per barrel, up 7.9% from one year earlier.  Finally, Mexican agriculture exports in October were up 0.3% year-over-year, though the figure masked big differences among key farm products.  For example, exports of fish and shellfish were up 69.8% year-over-year, and exports of onions and garlic were up 37.7%, but foreign sales of shrimp were down 45.1%, and the value of cucumbers sold abroad was down 29.4%.

Comment:  Mexican export growth has been slowing, with the year-over-year increases now less than half the rates of 40% or more earlier in 2010.  Export growth has been expected to slow as sales are now being compared to higher base figures one year ago.  Moreover, exports are likely to suffer going forward as U.S. inventory rebuilding peters out, the impact of U.S. fiscal stimulus starts to wane, and consumers north of the border continue to husband their resources and pay down debt.  Today's U.S. report of an unexpectedly sharp drop in durable goods orders is ample confirmation of that risk.  Therefore, the big rise in Mexico's trade deficit in October could be a harbinger of things to come.  Weaker export growth and larger trade deficits will likely lead to a continued moderation in Mexico's economic growth rate, and they could pose near-term headwinds for Mexican asset prices and for the value of the peso.  As has been emphasized repeatedly in this blog, the main threat is that Mexican exports could slow sharply or stall before consumer spending accelerates and investment starts to rise again.

Patrick Fearon, CFA
Vice President, Fund Management

                                 Mexico's Trade Balance
                          Seasonally Adjusted, Million US$
                                         Source:  INEGI
Trade Balance 1010

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