MexECON Blog

March Fixed Investment Falls 0.4 Percent

Gross fixed investment in Mexico fell by a seasonally-adjusted 0.4% during March, marking the third decline in the last four months and erasing much of the revised 1.3% increase in February.  The decline in March came in large part from a 2.0% drop in machinery and equipment investment, although that came after a big jump of 5.6% in the previous month.  Investment in new construction was also down in March, but only by 0.4%.

On an unadjusted basis, total fixed investment in March was up 1.7% from the same month one year earlier.  Investment in machinery and equipment was up a healthy 8.4% year-over-year, but construction was down 2.2%.

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

Comment:  I would not be too concerned about the March pullback in machinery and equipment investment.  That category can be volatile, and the decline in March reversed only a portion of the jump in February.  Mexican investment in machinery and equipment still seems to be on a renewed upswing, after stagnating in late 2013.  The main disappointment in today's report is the continuing weakness in construction.  In fact, the decline in construction during March was enough to reverse all of the category's rise in the previous month.  Tomorrow's monthly report on industrial production will show whether construction continued to fall in April.  Given the persistent problems in Mexican public works and homebuilding activity, I suspect that construction will continue to look weak.  Banco de México's surprise interest-rate cut last week was probably geared in part to ease financing conditions for Mexico's stressed homebuilders and create better conditions for a return to residential construction.  Nevertheless, any positive impact from the rate cut will take some time to show up.  Lethargic construction will probably continue to be a major headwind for the Mexican economy, helping to keep growth muted for the time being.

Patrick Fearon, CFA
Vice President, Fund Management

                                        Gross Fixed Investment in Mexico
                                           Seasonally Adjusted, 2008 = 100
                                                        Source:  INEGI
Fixed Investment 1403

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