MexECON Blog

Trade Deficit Widens, But Economic Picture Brightens

Mexico's May merchandise trade deficit widened to a seasonally-adjusted $461.1 million, after revised deficits of $428.1 million in April and $425.6 million in March.  According to the report, the value of Mexican exports rose to a record $33.416 billion in May, up 1.3% from the previous month.  The increase came mostly from a jump in foreign sales of autos and auto parts, and, to a lesser extent, higher petroleum exports.  The value of Mexican imports also rose to a record, expanding 1.4% to a total of $33.878 billion.  The rise in imports came mostly from higher purchases of foreign intermediate goods.  On an unadjusted basis, Mexican exports in May were up 4.7% from the same month one year earlier, while imports were up 2.8%.

Manufactured goods make up the vast majority of Mexico's merchandise exports, and in May, they were up 4.7% year-over-year.  The major manufactured goods showing the biggest increases were industrial machinery and equipment, professional and scientific equipment, and autos and auto parts.  Exports of autos and auto parts alone were up a strong 9.5% year-over-year.  Crude oil and other petroleum products are the second-most important category of Mexican exports, and they were up 3.6% year-over-year in May.  Within this category, the volume of Mexican crude oil exports averaged 1.116 million barrels per day, up 8.5% from May 2013.  The average export price for Mexican crude was $96.92 per barrel, down 1.8% from one year earlier.  Finally, Mexican agriculture exports in May were up a modest 2.3% year-over-year.  Among the agricultural exports posting the best performances, grape exports were up 78.7%, and citrus exports were up 75.0%.  Among the agricultural exports posting the worst performances, fresh strawberry exports were down 34.7%, and coffee exports were down 35.1%.

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

Comment:  Mexico's trade balance has now been in deficit for three straight months, and the deficit has been widening.  On its face, that would mark Mexico's worst trade performance since a string of deficits averaging more than $1.0 billion per month from January through May 2013.  However, today's report is more positive in its details.  Exports are clearly in a healthy uptrend again, after flattening out in mid-2013 and declining modestly late in the year.  Over the last three months, Mexico's exports have risen at an annualized rate of 15.0%.  Imports may have risen even more strongly, widening the overall deficit, but the jump has not been driven by either consumer goods or capital equipment.  The rise in imports has come almost exclusively from foreign purchases of intermediate goods such as subassemblies, components, semi-finished products, and other manufacturing inputs.  Because Mexican manufacturers rely heavily on such imported inputs to produce the goods they sell at home and abroad, increased purchasing of those goods suggests they are preparing for stronger sales in the near future.  The Mexican economy still faces weak demand in some domestic sectors, such as construction and consumer spending, but today's trade data is reason to be a bit more optimistic that growth can accelerate in the coming months.

Patrick Fearon, CFA
Vice President, Fund Management

Trade Balance 1405

Exports 1405


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