MexECON Blog

September Fixed Investment Rises 1.2 Percent

Fixed investment in Mexico rose a seasonally-adjusted 1.2% during September, according to a Friday report from the national statistics agency INEGI.  The rise in September was the third in a row, after revised gains of 1.1% in August and 2.5% in July.  The increase in September came as investment in imported machinery and equipment rose 2.3%, while investment in domestic machinery and equipment rose 1.0% and construction rose 1.1%.  On an unadjusted basis, total fixed investment in September was up 6.8% from the same month one year earlier, marking the best year-over-year increase in two years.

Comment:  With a third straight increase of 1.0% or more, fixed investment in Mexico finally seems to have established a good upward trend.  That is particularly important at this point in Mexico's recovery from the 2008-2009 recession.  To date, the main driver of the recovery has been rapidly rising exports to the United States, but those exports are expected to moderate in the coming quarters.  The main culprit is expected to be declining demand from north of the border, as U.S. inventory rebuilding moderates, the effects of fiscal stimulus start to wane, and U.S. consumers continue to husband their resources and pay down debt.  If investment in Mexico continues to strengthen, and if domestic consumption accelerates, the economy could keep growing well in spite of the expected slowdown in exports.  Nevertheless, investment in Mexico still faces big hurdles.  Uncertainty about future U.S. demand is likely to inhibit some investment, as will Mexico's continuing credit crunch.  In addition, rising violence by drug cartels is likely to be a negative factor.  Overall, however, the recent signs are positive.

Patrick Fearon, CFA
Vice President, Fund Management

                            Gross Fixed Investment in Mexico
                              Seasonally Adjusted, 2003 = 100
                                             Source:  INEGI
Fixed Investment 1009

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