MexECON Blog

October Fixed Investment Jumps 1.9 Percent

Gross fixed investment in Mexico jumped by a seasonally-adjusted 1.9% during October, easily erasing its 0.4% decline in September and marking its strongest increase since November 2013.  According to the report, the surge in October came mostly from a 6.1% gain in machinery and equipment investment.  Just as important, construction continued its recent uptrend.  Overall construction edged up 0.1% in October, for its ninth straight monthly increase.  Within this category, homebuilding expanded 1.2%, marking its ninth straight monthly increase, but non-residential construction fell 1.1%.

On an unadjusted basis, total fixed investment in October was up 6.8% from the same month one year earlier.  October machinery and equipment investment was up 11.7% year-over-year, while construction was up 3.8%.

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

Comment:  Mexican investment in machinery and equipment had fallen in three of the four months prior to October, raising concerns about prospects for the country's businesses.  The big jump in that category during October helps allay those concerns.  It now seems more certain that rising exports, industrial production, and consumer demand will keep machinery and equipment investment trending higher.  Meanwhile, increased commercial and residential construction continues to offset stagnant public works activity.  The rise in residential construction has been especially important.  A shift in government support policies had driven homebuilding lower from mid-2012 to late 2013, but the sector has been in a healthy rebound ever since.  Overall fixed investment in Mexico is therefore likely to keep rising in the coming months.

Nevertheless, it is important to remember that investment as a share of the economy remains much lower in Mexico than in many other large, dynamic "emerging markets."  In recent years, investment as a share of gross domestic product (GDP) has averaged only about 22.0% in Mexico, versus some 33.0% in India and 48.0% in China.  Moreover, Mexican investment as a share of GDP has actually been trending downward.  President Peña Nieto's reform program is trying to spur greater investment by allowing private-sector participation in the energy industry and breaking up monopolies in telecommunications, but it will take some time before investment rises to a level consistent with much stronger economic growth.

Patrick Fearon, CFA
Vice President, Fund Management

Fixed Investment 1410

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