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
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
Patrick Fearon, CFA
Vice President, Fund Management