MexECON Blog

November Fixed Investment Rises 1.1 Percent

Gross fixed investment in Mexico rose by a seasonally-adjusted 1.1% in November, erasing its 0.9% decline in October and marking its strongest gain in seven months.  Investment in new machinery and equipment jumped 2.8% during November, after four straight months of declines.  Construction rose 0.2%, after a fall of 0.8% in October and a rise of 3.0% in September.  On an unadjusted basis, total fixed investment in November was up 6.7% from the same month one year earlier.  The report was released today by INEGI, the official statistics agency.

Comment:  Last month, I warned that the weakness in Mexican fixed investment during late summer and autumn should be seen as a yellow flag.  Businesses had turned cautious in the face of extreme financial volatility and reports of slower global economic growth, and it was unclear when they might ramp up investment again.  With the rebound in investment during November, it is possible that the slowdown has already run its course, though it is still too early to know for sure.  Businesses have plenty of reasons to keep investing in Mexico.  The U.S. economy is gaining traction, and it will likely continue to do so as long as the European debt crisis does not get too much worse and Asian growth does not slow too much.  The resulting rise in demand from north of the border would be a powerful incentive for further capacity additions in Mexico.  Meanwhile, producers in Asia continue to face rising production costs and volatile fuel and transportation expenses, making Mexico more cost competitive.  Finally, several Asian currencies - including the Chinese renminbi - are strengthening, even as the Mexican peso remains relatively weak.  In sum, Mexican investment will likely continue to rise in the near term, giving the Mexican economy an added source of growth.

Patrick Fearon, CFA
Vice President, Fund Management

                                     Gross Fixed Investment in Mexico
                                      Seasonally Adjusted, 2003 = 100
                                                      Source:  INEGI
Fixed Investment 1111

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