Bloomberg News

Mexico Growth Probably Accelerated as U.S. Recovery Gathers Pace

May 17, 2012

Mexico’s economic expansion probably accelerated in the first quarter as demand from the U.S. picked up, the latest sign that it is surpassing Brazil after trailing Latin America’s biggest economy for most of the past decade.

Gross domestic product expanded 1 percent from the previous three months, when the economy grew 0.42 percent, according to the median estimate of 10 economists in a Bloomberg survey. Analysts expect year-on-year growth to accelerate to 4.5 percent from 3.7 percent. The national statistics institute will release the figures at 9 a.m. today in Mexico City.

Mexico’s growth exceeded Brazil’s in the last three quarters of 2011 as domestic consumption and exports picked up on the heels of a strengthening U.S. recovery. The lowest inflation rate in Latin America and a benchmark interest rate that has remained at a record low for 34 months are helping improve the outlook for growth in the region’s second-largest economy, said Italo Lombardi, an economist at Standard Chartered Bank.

“Brazil is growing less than Mexico, while it used to be the other way around,” Lombardi said. “Mexico is becoming more diversified than before since we’ve seen a more solid performance of internal demand.”

Mexico’s central bank yesterday raised its growth forecast for this year to between 3.25 percent and 4.25 percent from 3 percent to 4 percent. Brazil’s economy will expand 3.2 percent this year, according to economists surveyed by the central bank.

Manufacturing Strength

Mexican manufacturing exports are growing at a “very accelerated” pace, bank Governor Agustin Carstens told reporters yesterday.

Exports rose 3.4 percent to a record $32.4 billion in March from a year ago, with the trade surplus reaching $1.6 billion, the highest monthly figure since at least 1985. In Brazil, exports peaked at $26.1 billion in August, before falling to $20.9 billion in March as a slowdown in China, Asia’s biggest economy, damped demand for its raw materials.

Mexico’s economy grew 3.9 percent last year, compared with expansion of 2.7 percent in Brazil, where GDP is twice the size.

As exports pick up, consumer confidence soared to a four- year high in Mexico in April, while economic growth accelerated to 6.24 percent in February, beating the 5.5 percent median forecast in a Bloomberg survey.

Sentiment

Additionally, the approach of July’s presidential election has failed to damp consumer sentiment.

Mexico’s presidential race on July 1 is unlikely to derail the economic stability of the country and should be neutral for the country’s creditworthiness in the near term, Fitch Ratings said in a May 15 report.

The peso plunged in the first half of 2006 on concern Andres Manuel Lopez Obrador, who said he would renegotiate the North American Free Trade Agreement with the U.S. and Canada, would win the presidency.

In 2000, concern the ruling Institutional Revolutionary Party, or PRI, would contest a victory by Vicente Fox, whose election ended 71 years of single-party rule, helped push the peso down 3.3 percent.

In 2012 to date, the peso has gained 1.3 percent, the fourth-best performance against the dollar among the 16 most- traded currencies.

Mexico is poised to become the fourth-largest global exporter of automobiles this year, President Felipe Calderon said on May 14. It currently ranks fifth.

Among the biggest investors in Mexico’s car industry are Detroit-based General Motors Co. and Dearborn, Michigan-based Ford Motor Co.

Competition

The country’s success has created tensions with Brazil, which has pressured Mexico to cut car exports by as much as 30 percent for the next three years to reverse a surge in shipments to Latin America’s largest economy.

The cost of protecting Mexican debt against non-payment for five years with credit default swaps was 11 basis points less than that for Brazil on May 9, the biggest gap since April 20, 2010, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Mexico’s growth is driven by expansion in the U.S., which accounts for 80 percent of exports from its southern neighbor.

U.S. housing starts and industrial production exceeded analyst forecasts in April. Starts rose 2.6 percent to a 717,000 annual rate from March’s 699,000 pace, Commerce Department figures showed yesterday. Industrial production climbed 1.1 percent, the most since December 2010, the Federal Reserve said.

While Mexico’s economic growth accelerates, inflation remains under control. Consumer prices rose 3.41 percent in April from the year earlier, compared with 5.1 percent in Brazil.

Subdued inflation has enabled the central bank to keep its key rate on hold since July 2009, while Brazil raised or lowered its benchmark rate 15 times over the same period.

“The outlook on inflation in Mexico is pretty steady, pretty stable, pretty predictable.” said Enrique Alvarez, an emerging-market analyst at IdeaGlobal in New York. “You get a more favorable outlook and panorama in Mexico. In Brazil you don’t.”

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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