MexECON Blog

August Industrial Production Falls 1.1 Percent

Mexico's August industrial production fell by a seasonally-adjusted 1.1%, after a downwardly revised increase of 0.2% in July and a drop of 0.6% in June.  The decline in output during August was the worst in two years.  According to the report, from the official statistics agency INEGI, the August slump came almost entirely from a big drop in manufacturing activity.  August factory output dropped 1.5%, reversing its 0.6% increase in July and marking its sharpest pullback since May 2009.  In addition, August mining output fell for a third straight month, posting a decline of 0.1%.  Construction activity rose 0.1% in August, while utility production rose 0.4%.  On an unadjusted basis, overall output in August was up 3.1% from the same month one year earlier.

Comment:  As predicted on this blog when the July production figures were released last month, Mexico's industrial activity has weakened and become choppier in response to the recent volatility in the global financial markets and the sharp pullback in economic growth in the key developed countries.  There is still some momentum in Mexico's domestic economy, as shown by yesterday's report of a fourth straight monthly increase in fixed investment during July, but weaker demand abroad has shown up in the all-important trade sector.  Mexican export growth has slowed, and that is apparently starting to weigh on industrial production.  If foreign demand continues to weaken, industrial activity would likely slow further.  If the slowdown goes too far, domestic demand could retreat as well.  Of course, incoming economic reports from the developed countries have often been surprisingly good over the last week, including today's report of an unexpected increase in the euro zone's August industrial production.  Nevertheless, the developed countries are still flirting with renewed recession, and Mexico's economic risks remain weighted to the downside.

Patrick Fearon, CFA
Vice President, Fund Management

                                        Mexican Industrial Production
                                       Seasonally Adjusted, 2003 = 100
                                                      Source:  INEGI
Industrial Output 1108

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