MexECON Blog

November Exports Rise 10.1 Percent YOY

In an initial estimate, Mexico's November merchandise trade balance swung to a seasonally-adjusted surplus of $497.7 million.  That was more than enough to reverse the revised deficit of $429.0 million in October, and it marked the fifth surplus in the last thirteen months.  According to the report, from the official statistics agency INEGI, Mexican exports jumped 2.0% in November, after gaining just 0.3% in each of the previous two months.  Imports dropped 1.2%, after a 1.9% decline in October.  On an unadjusted basis, Mexican exports in November were up 10.1% from the same month one year earlier, while imports were up 10.6%.

Manufactured goods make up the vast majority of Mexico's merchandise exports, and in November, they were up 7.8% year-over-year.  The major manufacturing categories showing the strongest export growth in November were steel and metal products, autos and auto parts, and chemicals.  Crude oil and other petroleum products are the second-most important category of Mexican exports, and they were up 20.4% year-over-year in November.  On a volume basis, Mexican crude oil exports totaled 1.362 million barrels per day, down 15.8% from November 2010.  On a value basis, however, the average export price for Mexican crude was $107.44 per barrel, up 39.9% from one year earlier.  Finally, Mexican agriculture exports in November were up 9.9% year-over-year.  Coffee exports were up 255.7% from one year ago, reflecting the continuing strong coffee market.  Among the other agricultural products showing good gains, tomato exports were up 51.2% year-over-year, while avocado exports were up 38.5%.

Comment:  Mexico's trade performance continues to moderate, but it remains unusually healthy.  At the beginning of the current economic expansion, Mexico's year-over-year export growth was often more than 30%, so the 10.1% increase in November is a significant slowdown.  With the big gains in the past, however, slower year-over-year increases are now to be anticipated.  Moreover, the modest economic growth in the United States has limited the export gains that Mexico can expect.  The important thing is that Mexico is now regularly producing trade surpluses, after a long period of perennial deficits.  As I've argued before, the improved trade performance partly reflects Mexico's position as a major petroleum exporter.  Even though its oil fields are on the decline, the aging fields in the United States are also producing less, and demand from north of the border continues to grow.   As U.S. demand began to recover after the Great Recession, Mexico was able to temporarily boost its production for export, just as prices began to rise again.  A second reason for Mexico's recent good trade performance is the significant drop in the value of the peso since 2008.  Though the currency staged a sharp recovery until summer 2011, it has since taken another leg down.  Finally, Mexico continues to benefit from relatively low labor costs.  The labor cost advantage became much more important in the late 2000s, when Chinese labor costs began to skyrocket and rising energy prices made shipping more expensive.  The result was that companies embarked on a wave of "near-sourcing" their production from Asia to Mexico.  The trend was masked by the global economic downturn, but it is now becoming increasingly evident.  Mexico was unusually well poised to take advantage of the U.S. economic recovery, and its export rebound in this cycle has been extraordinary.  Even though the Mexican expansion is now driven mostly by domestic demand, trade continues to provide a significant boost.  The European debt crisis and the slowdown in Asian growth pose important risks for Mexico.  However, if those problems do not get too much worse, the U.S. economy should keep recovering, Mexican exports should keep growing, and the Mexican economy should remain on an uptrend.

Patrick Fearon, CFA
Vice President, Fund Management

             Mexico's Merchandise Trade Balance
                 Seasonally Adjusted, Million US$
                                Source:  INEGI
Trade Balance 1111 B

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