Thursday, June 05, 2008


Mexico Strong

David Alfaro Siqueiros

Mexico isn't feeling the U. S. economic slump
Stocks, exports, peso and GDP are up

By Marla Dickerson - LOS ANGELES TIMES

MEXICO CITY — A sizzling stock market. A strengthening peso. Good
economic growth. Someone forgot to tell Mexico that the United States
has been flirting with recession.

"Mexico . . . is not immune" to what's happening north of the border,
said Gray Newman, chief Latin American economist for Morgan Stanley
in New York. But, "it's not suffering the kind of downturn that
everyone was expecting with weakness in the U. S."

Mexico's gross domestic product expanded at an annualized rate of 2.6
percent in the first three months of the year compared to the same
period a year earlier, according to government figures.

But there was statistical noise in the first-quarter numbers:
Adoption of the new international standard for calculating gross
domestic product, and an early Easter week holiday, which resulted in
fewer working days compared to the first three months of last year.
Adjusting for those factors, first-quarter GDP growth was a solid 3.7
percent, according to the government.

Meanwhile, U. S. gross domestic product rose just 0.9 percent in the
first quarter.

Mexico is the world's 14th largest economy, according to the latest
statistics available from the World Bank, with a GDP of $839.2
billion in 2006.

Bound to the United States by history, geography, immigration, trade
and investment, Mexico's fortunes have long been linked to those of
its northern neighbor. The U. S. housing industry, for example, which
employs one in five Hispanic immigrants, is in a slump, resulting in
a marked slowdown of remittances sent to Mexico. A prolonged U. S.
downturn would undoubtedly hit Mexico hard.

Still, the nation's economy is holding up well. The Mexican bolsa
(stock) index is up 14.5 percent so far this year. The peso is
strong: At the first of the year, $1 could buy nearly 10.9 pesos; now
$1 buys a little over 10.3 pesos.

One factor is that much of the world economy is growing despite the
U. S. slowdown. While Mexico still ships about 80 percent of its
exports to the United States, its farmers and manufacturers are
looking for new customers in Asia, Europe and the rest of Latin
America.

That diversification is paying off. During the first quarter, Mexican
exports to the U. S. grew slightly more than 16 percent, while
shipments to the rest of the world grew at twice that pace, 32
percent. Exports to Europe grew by 56 percent.

The trend can be seen in Volkswagen de Mexico, the Mexican division
of the German automaker, which manufactures Beetles and Jettas at a
sprawling facility in Puebla, Mexico. Through the first four months
of the year, VW's Mexican exports totaled 123,000 vehicles, up 29
percent from the same period a year ago, said spokesman Thomas Karig.

The Puebla plant recently began manufacturing a new fuel-efficient
station wagon, the Jetta SportWagen, which is proving a hot seller in
Europe, Karig said. Exports to Brazil and Argentina are strong as
well.

The Mexican government's decision to enter into free-trade agreements
with a number of nations has made Mexico an attractive place for
Volkswagen to build cars, Karig said.

"We can export our cars very competitively from Mexico to these other
markets," he said.

Other automakers are posting good numbers as well. Through the first
four months of the year, vehicle exports from Mexico are up 18.5
percent over the same period a year ago, according to the Mexican
Automotive Industry Association.

One of the strongest performers has been General Motors. Mexico's
largest automaker exported 127,625 vehicles in the first four months
of the year, up nearly 38 percent over 2007, the association says.

Part of that jump reflects production of a new model, the Saturn VUE,
at GM's Saltillo, Mexico, plant. The crossover sport utility vehicle
gets better gas mileage than traditional full-size SUVs, according to
GM spokesman Mauricio Kuri.

And Ford Motor Co. announced Friday that it plans to build its new
Fiesta subcompact at a factory near Mexico City for sale in the U. S.

The plant now makes trucks for the Mexican market. The company plans
to import trucks from the U. S. in the future to free factory
capacity for the new small cars.

Ford also said Friday that it plans a new diesel engine line at its
at Chihuahua Engine Plant and a new joint venture transmission plant
with Getrag in Guanajuato.

Overall, Ford and its parts suppliers will invest $3 billion in
Mexico as part of the Fiesta project, Ford said. About 4,500 Ford
jobs should be created at the plants, the company said.

As it loses more manufacturing jobs to China, Mexico has focused its
energies on the automotive industry.

"We want Mexico to be an automotive country, one that is competitive
and with the most advantages so that the worldwide automotive
industry will establish itself here," President Felipe Calderon said.

Skyrocketing crude prices might be pinching U. S. drivers, but
they've meant record oil revenue for Mexico, the world's sixth-
largest oil producer. The petroleum windfall is bankrolling a slew of
government spending and investment, which is helping to keep the
economy rolling.

Total public spending increased 9.5 percent in the first three months
of the year compared to the same period last year.

Calderon plans to invest about $250 billion in roads, airports and
other infrastructure during his six-year term, which ends in 2012.


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