MexECON Blog

November Industrial Production Rises 0.1 Percent

Mexico's November industrial production rose by a seasonally-adjusted 0.1%, after a decline of 0.5% in October and a jump of 1.3% in September.  The rise in November came mostly from a 0.1% increase in manufacturing output.  In addition, November mining production was up 0.4%.  In contrast, Mexican construction activity was flat in November, while utility output was down for a third straight month.  On an unadjusted basis, overall production in November was up 3.2% from the same month one year earlier.  The report was released today by INEGI, the official statistics agency.

Comment:  Mexican industrial activity has cooled markedly in recent months, and output is now growing only slowly.  However, this is an impressive accomplishment, given the global financial panic and economic slowdown since late summer.  Mexico continues to benefit from the fact that the U.S. economy is finally gaining some traction.  The recent decline in the value of the peso has also made Mexican exports cheaper for U.S. buyers.

In my view, a more fundamental reason for Mexico's growing industrial output is the wave of "near-sourcing" that occurred over the last several years.  As Chinese wage rates skyrocketed and rising energy prices made transportation more expensive in the mid-2000s, more firms shifted production from Asia to Mexico.  Based on data from the International Monetary Fund, investment rose to 26.5% of Mexico's gross domestic product (GDP) in 2006-2008, from just 24.0% of GDP in 2003-2005.   Similarly, foreign direct investment in Mexico rose to a quarterly average of $5.2 billion in 2006-2008, compared with $4.4 billion in 2003-2005.  Much of the new productive capacity came on line in the midst of the Great Recession of 2008 and 2009, so the trend was largely masked.  Now, however, with the North American economy in recovery, Mexico has been particularly well positioned to meet the rebound in demand, and its exports and industrial production have risen strongly.  A report yesterday showed a recent weakening in fixed investment that bears watching, but if economic activity north of the border can continue to rise, Mexico's industrial activity will probably trend modestly upward for a while yet.

Patrick Fearon, CFA
Vice President, Fund Management

                                       Mexican Industrial Production
                                     Seasonally Adjusted, 2003 = 100
                                                     Source:  INEGI
Industrial Output 1111

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