MexECON Blog

November Fixed Investment Rises Further

Gross fixed investment in Mexico rose by a seasonally-adjusted 0.3% during November, after a 1.9% gain in October.  According to the report, November investment in machinery and equipment slipped 0.2%, for its fourth decline in the last six months.  However, that was offset by a 0.8% increase in construction.  The construction category has now risen for ten straight months, driven mostly by a strong recovery in homebuilding.

On an unadjusted basis, total fixed investment in November was up 4.7% from the same month one year earlier.  Despite its recent weakness, machinery and equipment investment in November was up 8.8% year-over-year, while construction was up 2.6%.

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

Comment:  I am not too concerned about the recent softness in Mexico's machinery and equipment investment.  That category can be volatile, but the trend has clearly been upward for the last several years, and I suspect that the ongoing rise in Mexican exports, industrial production, and consumer demand will keep it moving upward.  Meanwhile, commercial and residential construction looks set to increase further, helping to offset continued weakness in public works projects.  In other words, overall fixed investment in Mexico is 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 1411

Fixed Investment by Type 1411

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