MexECON Blog

July Export Rise Confirmed

In a revised estimate, Mexico's July merchandise trade deficit narrowed to a seasonally-adjusted $382.0 million.  The figure was a bit worse than the initial estimate of $380.9 million, but it was much better than the revised deficits of $867.4 million in June and $772.3 million in May.  According to the report, from the national statistics agency INEGI, Mexican exports jumped 4.2% in July, after two straight months of declines.  Imports rose just 2.1%, reversing part of a big fall the month before.  On an unadjusted basis, Mexican exports in July were up a robust 29.5% from the same month one year earlier, while imports were up 26.5%.

Manufactured goods make up the vast majority of Mexico's exports, and they were up 32.1% year-over-year in July.  According to the report, the increase came mostly from stronger foreign sales of metals, industrial equipment, and autos.  Mexican auto exports continued to be the biggest bright spot, posting a year-over-year rise of 64.3% in July, although that was not quite as good as some of the growth rates posted earlier in the year.  Petroleum products are the second-most important category of Mexican exports, and they were up 17.1% year-over-year in July.  In terms of volume, petroleum exports rose to 1.386 million barrels per day, up 6.0% from July 2009.  In terms of price, exported Mexican oil sold for an average of $68.26 per barrel, up 12.0% from July 2009.  Finally, Mexican agriculture exports in July were up 19.2% year-over-year.  The rise in agricultural exports came in large part from a 64.8% increase in the value of tomato exports and a 42.0% rise in the value of cattle exports.

Comment:  The narrowing trade deficit suggests the strong economic growth registered in Mexico during the second quarter could be carrying over into the third quarter as well.  The narrowing deficit is also a welcome counterpoint to the weakening in some Mexican economic indicators during late spring and early summer.  Nevertheless, it is important to remember that Mexico's current export boom has an uncomfortably narrow base.  Triangulating between Mexican and U.S. trade data, it appears some 38.5% of the total year-over-year rise in Mexican exports this year has come from higher exports of trucks, autos, and auto parts.  The export category posting the second-largest contribution - computers and electronic equipment - accounted for only about 17.8% of the total export gain.  The risk, of course, is that U.S. inventory rebuilding could continue to slow and U.S. corporate and consumer demand could fail to accelerate, particularly in the auto sector.  That could lead to overall Mexican exports stalling out before other sectors of the economy are growing fast enough to take up the slack.  On the positive side, however, it appears that the U.S. auto fleet is still aging, while U.S. auto inventories have some room for further rebuilding.  Therefore, a slowdown in Mexico's auto export boom is not necessarily imminent.

Patrick Fearon, CFA
Vice President, Fund Management

                            Mexican Exports
                 Seasonally Adjusted, Million US$
                              Source:  INEGI
Exports 1007

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