MexECON Blog

June Export Growth Slows to 28.8 Percent YOY

In a preliminary report, Mexico's June merchandise trade balance worsened to a seasonally-adjusted deficit of $914.1 million.  The figure was much worse than the revised deficit of $746.8 million in May and the revised surplus of $36.2 million in April.  According to the report, Mexican exports fell 5.2% in June, after a revised decline of 2.6% in May.  That marked their first back-to-back declines and their worst monthly pullback since the end of 2008.  Imports fell 4.4% in June, for their first decline since early 2009.  On an unadjusted basis, Mexico's exports in June were up just 28.8% from the same month one year earlier, while imports were up 36.3%.  Over much of the last year, for comparison, both exports and imports had routinely shown year-over-year increases of 40% or more.  Manufactured goods make up the vast majority of Mexican exports, and they were up 36.5% year-over-year in June, with the increase coming mostly from stronger foreign sales of industrial equipment and autos.  Petroleum products are the second most important category of Mexico's exports, and they were down 7.9% year-over-year.  On a volume basis, petroleum exports in June fell to 1.11 million barrels per day, down 10.2% from June 2009.  The average export price for Mexican oil fell to $67.24 per barrel, but it was still up 4.5% from one year earlier.  Finally, Mexican agriculture exports in June were down 7.5% year-over-year.  Several key agricultural exports continued to show year-over-year gains, including live cattle (up 27.3%), grapes (up 21.8%), and miscellaneous fruits (up 19.4%).  However, those gains were offset by sharp declines in other categories, such as frozen shrimp (down 92.8%), wheat (down 90.2%), and avocados (down 29.7%).

Comment:  Mexican trade deficits should be no surprise.  Mexico relies heavily on imported intermediate goods and, to a lesser extent, on imported raw materials.  Therefore, when Mexican exports are in a strong uptrend, as they generally have been over the last year, imports also start rising and eventually surpass exports.  Nevertheless, increased trade is an important stimulus for the Mexican economy, and over the last year, it has spurred much stronger industrial activity and increased hiring.  Because of this, the export declines in May and June are a substantial concern.  They may indicate that U.S. inventory rebuilding is coming to an end while U.S. consumption and investment remain tepid.  If so, Mexican industrial activity and hiring likely would moderate, and the economy would be more vulnerable to problems such as renewed instability in the world's financial markets.  Mexico's economic recovery still looks more likely to continue than to peter out, but the growth rate looks set to slow, at least temporarily.

Patrick Fearon, CFA
Vice President, Fund Management

                                           Mexico's Trade Balance
                                    Seasonally Adjusted, Million US$
                                                  Source:  INEGI
Trade Balance 1006

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