MexECON Blog

Trade Balance Remains in Surplus

Mexico's October merchandise trade surplus narrowed to a seasonally-adjusted $515.1 million, after revised surpluses of $669.7 million in September and $464.8 million in August.  Nevertheless, the figures show Mexico has now posted its best overall trade performance since a string of five surpluses from late 2011 to early 2012.  The value of Mexican exports rose to $32.244 billion in October, up 0.6% from the previous month.  The value of the country's imports rose to $31.729 billion, up 1.1%.  On an unadjusted basis, Mexican exports in October were up 3.4% from the same month one year earlier, while imports were down 1.0%.

Manufactured goods make up the vast majority of Mexico's merchandise exports, and in October, they were up 5.0% year-over-year.  The major manufactured exports showing the biggest increases were autos and auto parts, professional and scientific equipment, and food and beverages.  Exports of autos and auto parts alone were up 13.0% year-over-year.  Crude oil and other petroleum products are the second-most important category of Mexican exports, and they were down 6.4% year-over-year in October.  Within this category, Mexican crude oil exports averaged 1.193 million barrels per day, down 12.7% from October 2012.  The average export price for Mexican crude fell to $95.07 per barrel, down 4.1% from one year earlier.  Finally, Mexican agriculture exports in October were up 10.3% year-over-year.  Among the agricultural exports posting the best performances, avocado exports were up 66.0%, and mango exports were up 64.5%.

The report was released today by INEGI, the official statistics agency.

Comment:  The United States typically takes some 80% of Mexico's exports, so to understand why the country's trade performance has improved in recent months, we have to look at developments north of the border.  In my view, the key development is that the U.S. economic expansion has solidified.  From a historical perspective, it is certainly true that the U.S. growth rate is anemic, and that the recovery from the global financial crisis of 2008 remains incomplete.  U.S. gross domestic product grew at an average annual rate of 3.4% from 1948 to 2008, but average growth slowed to 2.6% from 1998 to 2008 and 1.8% from 2002 to 2012.  Over the last five years, U.S. growth has averaged just 0.8%.  However, I suspect that the strong growth rates after World War II were an anomaly.  With the U.S. economy emerging from the war not only relatively unscathed, but strengthened, and with the U.S. baby boom moving into full swing, the United States had some important advantages.  With their major foreign competitors so heavily damaged, and with trade liberalization still off in the future, U.S. producers had a lot of room to maneouver.  Now, countries such as Japan and Germany have rebuilt themselves into formidable competitors, and upstarts such as China have utilized economic reforms and trade liberalization to take a sizable chunk of world production.  The U.S. population is still growing relatively rapidly for a developed country, but the population is aging, muting demand and making it more difficult for the economy to recover from recession.  Finally, the process of deleveraging after a debt crisis is always a long, drawn-out affair.  Relatively slow growth in the United States therefore seems to be the "new normal." In this context, the country's consistent, modest growth figures over the last couple of years are actually encouraging.  Even more encouraging is that U.S. indicators on job creation, retail sales and housing have held up much better than expected after October's partial federal government shutdown and recent signs of tightening monetary policy.  These developments suggest to me that the U.S. economy has entered into a virtuous cycle in which modest employment growth and rising house and stock prices are encouraging modest improvements in retail demand, which in turn are encouraging further hiring and some investment.  Against this backdrop, there is a greater chance that Mexican exports can keep growing modestly, helping to offset headwinds such as relatively tight fiscal policy and a weak construction sector.

Patrick Fearon, CFA
Vice President, Fund Management

Trade Balance 1310

Exports 1310


0 comment(s) for “Trade Balance Remains in Surplus”

    Leave a Comment