MexECON Blog

Government Raises 2010 GDP Forecast

According to press reports, the Finance Ministry has raised its official forecast for Mexico's Gross Domestic Product (GDP) in 2010. Under the new forecast, Mexico's GDP would rise 3.9% this year, modestly better than the country's average growth rate of approximately 3.2% from 1988 to 2008. Official data indicate that Mexican GDP fell 6.5% in 2009.

The Finance Ministry attributed the upward revision to recent data pointing to an unexpectedly strong rebound in the Mexican industrial sector. Recent data have shown healthy increases in manufacturing exports, industrial production, transportation, and commerce. With the global economic recovery continuing, the Finance Ministry expects those trends to remain in place. It also pointed to evidence - such as rising imports of consumer goods - that suggest domestic demand is strengthening.

Comment: Just as a sharp drop in U.S. demand was a key reason for Mexico's painful contraction in 2009, the rebound in U.S. corporate demand this year is having a strong positive impact. Of course, much of the improvement this year stems from manufacturers rebuilding their inventories toward more normal levels. An important question is whether or not that continues. For Mexico to achieve sustainable growth, U.S. capital flows and remittances from Mexicans living in the United States may also need to strengthen again. Nevertheless, Mexico's economic recovery is currently much stronger than most observers would have expected, and the prospects look decent for sustained improvement throughout 2010.

Patrick Fearon, CFA
Vice President, Fund Management

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