Mexico Prospering

Mexico prospering despite U.S. slowdown

By Marla Dickerson Los Angeles Times Staff Writer 
marla.dickerson@latimes.com 
May 23rd 2008

Workers on the assembly line at Volkswagen’s plant in Puebla, Mexico, put together Jetta SportWagens, a hot seller in Europe.

The Latin American nation is holding up well with exports catering to the growing world economy.

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

Mexico’s gross domestic product expanded at an annualized rate of 2.6% in the first three months of the year compared with a year earlier, according to government figures released Thursday. It’s a respectable performance that highlights the nation’s surprising resilience in the face of a U.S. slowdown.

The growth appeared muted compared with the fourth quarter of 2007, when Mexico’s GDP expanded by 3.8%. But there was statistical noise in the first-quarter numbers. The government this year adopted a new international standard for calculating GDP, which is the value of all goods and services produced in the economy. And the January-to-March period was hobbled by this year’s early Easter week holiday, which resulted in fewer working days compared with the first three months of last year. Adjusting for those factors, first-quarter GDP growth was a solid 3.7%, according to the Treasury secretariat.

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

The fortunes of Mexico have long been linked to those of its northern neighbor, bound as the two countries are by geography, immigration, trade and investment. The U.S. housing industry, for example, which employs 1 in 5 Latino immigrants, is in a slump, resulting in a marked slowdown of remittances sent to Mexico. A prolonged downturn would undoubtedly hit Mexico hard.

Still, the nation’s economy is holding up well. One factor is that much of the world economy is growing despite the U.S. slowdown. Although Mexico still ships about 80% of its exports to the U.S., 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 just over 16%, while shipments to the rest of the world climbed 32%. Exports to Europe grew 56%.

The trend can be seen at Volkswagen de Mexico, the Mexican division of the German automaker, which manufactures Beetles and Jettas at a sprawling facility in Puebla. Through the first four months of the year, VW’s Mexican exports totaled 123,000 vehicles, up 29% from the year-earlier period, according to company spokesman Thomas Karig.

The Puebla plant recently began manufacturing the new fuel-efficient Jetta SportWagen, which is proving to be 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 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% over the year-earlier period, according to figures from the Mexican Automotive Industry Assn.

One of the strongest performers has been General Motors Corp. Mexico’s largest automaker exported 127,625 vehicles in the first four months of the year, up nearly 38% over 2007, according to the association.

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.

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% in the first three months of the year compared with the same period last year.

President Felipe Calderon plans to invest billions in roads, airports and other infrastructure during his six-year term, which ends in 2012.

“Fiscal policy is one of the main weapons that the Mexican government is activating to protect the economy from the American recession monster,” said Alfredo Coutino, Latin America analyst with Moody’s Economy.com. “We’re already seeing the effects.”

The economy has also gotten a boost from a stronger peso: The currency has risen from 10.91 to the dollar Dec. 31 to 10.37 on Thursday.

Mexico’s IPC stock market index is up 5.8% in peso terms year to date and up 11.4% in dollar terms, thanks to the peso’s strength.

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