MexECON Blog

May Leading Index Falls 0.3 Percent

In a new report from INEGI, the national statistics agency, Mexico's May index of leading economic indicators fell a seasonally-adjusted 0.3%.  That marked the second straight decline in the index, after a fall of 0.6% in April.  It was the first time the index fell for two consecutive months since the beginning of last year.  Before the declines this spring, Mexico's leading index had not fallen for thirteen straight months.  According to today's report, the decline in May stemmed from negative movements in the export price of Mexican petroleum, in the inflation-adjusted exchange rate, and in inflation-adjusted stock prices.

Comment:  The back-to-back declines in the leading index are consistent with other data showing that the Mexican economic recovery has hit a soft patch.  Back-to-back declines do not guarantee a pullback in the economy, but they do suggest that such a pullback is a growing possibility.  Another decline in June would raise the risk even further.  To date, Mexico's economic recovery has stemmed primarily from rapidly rising exports to the United States.  Rising exports have spurred increased industrial activity and brought down unemployment.  However, recent reports suggest U.S. inventory rebuilding may be coming to an end, and corporate and consumer demand north of the border remain tepid.  In addition, global financial markets remain on edge because of high debt levels and the threat of sovereign defaults in Europe.  That could weigh on the flow of foreign capital into Mexico and exacerbate the country's continuing credit crunch.  The Mexican recovery still looks more likely to continue than to falter, especially if consumer and corporate demand in Mexico start to do better, but the downside risks are significant.

Patrick Fearon, CFA
Vice President, Fund Management

                                      Mexico's Index of Leading Economic Indicators
                                                  Seasonally Adjusted, 2003=100
                                                                   Source:  INEGI
Leading Index 1005

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