MexECON Blog

December Fixed Investment Falls Sharply

Gross fixed investment in Mexico dropped by a seasonally-adjusted 3.9% in December, for its sharpest decline since 2003.  The decline easily erased the revised 1.2% increase in November.  According to the report, released Friday by the official statistics agency INEGI, new construction fell 2.6% in December, after declines of 0.9% in November and 2.5% in October.  Investment in new machinery and equipment plunged 5.5% in the final month of the year, erasing its previous 5.0% gain.  On an unadjusted basis, total fixed investment in December was down 2.4% from the same month one year earlier.

Comment:  The December investment report confirms that Mexican construction activity is in a prolonged downslide.  Construction fell in four of the last five months of 2012, and in the second half of the year, it decreased by a total of 5.4%.  Investment in new machinery and equipment has held up better, but it has flattened out over the last several months.  At the same time, Mexican exports have slowed, unemployment has risen, and consumer spending and confidence have pulled back.  The problems have become so bad that Banco de México cut its benchmark interest rate last Friday for the first time in almost four years.  It is possible that the weakness in Mexico came from caution regarding the U.S. "fiscal cliff" at the end of 2012, and that the economy will strengthen again when it becomes clear that the United States has weathered the crisis.  As of right now, however, there is no sign that Mexico is pulling out of its year-end pullback.

Patrick Fearon, CFA
Vice President, Fund Management

                                               Gross Fixed Investment in Mexico
                                                 Seasonally Adjusted, 2003 = 100
                                                               Source:  INEGI
Fixed Investment 1212

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