MexECON Blog

May Fixed Investment Plunges 2.4 Percent

Gross fixed investment in Mexico plunged by a seasonally-adjusted 2.4% in May, for its worst monthly decline since the depths of the global financial crisis.  The decline in May was more than enough to reverse the upwardly revised gain of 2.1% in April.  According to the report, released yesterday by the official statistics agency INEGI, the drop in fixed investment in May came mostly from a sharp 3.4% decline in machinery and equipment investment.  However, that decline was not enough to reverse the 4.4% increase in that category during the previous month.  The report also showed that construction declined 0.5% in May, after a fall of 0.4% in April.  On an unadjusted basis, total fixed investment in May was up 7.4% from the same month one year earlier.

Comment:  Mexican fixed investment can be volatile, as illustrated by the unusually large increase in April and decrease in May.  Some of the drop in May was probably just the normal giveback one would expect after the surge in the previous month.  As I projected in my write-up of the April investment report last month, however, the main reason for the plunge in May was probably the latest worsening of the European debt crisis and slower U.S. economic growth.  Those problems from abroad could continue to weigh on Mexican investment in June.  Nevertheless, the overall economic picture in Mexico remains unusually good, and recent data from the United States and Mexico itself suggest any slowdown in the economy could be limited.  For example, press reports this week showed that several Japanese steel companies have formed a joint venture to build a new steel plant in Guanajuato to supply the growing Mexican auto industry.  While investment in Mexico could well slow in the coming months, the overall level of investment should remain strong unless the international environment worsens dramatically.

Patrick Fearon, CFA
Vice President, Fund Management

                                           Gross Fixed Investment in Mexico
                                              Seasonally Adjusted, 2003 = 100
                                                            Source:  INEGI
Fixed Investment 1205

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