Mexican Economy Posts 7.4% Gain in 3rd Quarter

Mexicans, long shellshocked by economic crisis, may have begun to fuel growth by spending money again, according to a government report released Thursday.

The Finance Ministry said the economy grew 7.4% in the third quarter, compared with the previous year, a higher figure than most analysts had expected.

It was the second consecutive quarter of year-on-year growth, and analysts said it showed the economy was on the mend after suffering its worst recession in half a century in 1995.

Tainting the good news was evidence that imports of consumer goods were rebounding, raising fears that Mexico may soon face its first trade deficit in nearly two years.

Nevertheless, many economists had been busily bumping up their forecasts of economic growth just hours before Thursday’s report was released, on the strength of robust September industrial production data issued Monday that reflected the vitality of the export-led manufacturing sector.

Projections still fell short, however, because few had expected the 5.4% bulge in the service sector of the economy, which accounts for about 75% of gross domestic product. GDP measures the goods and services produced in a country’s borders.

“It’s still early, but the very rapid growth in the manufacturing sector is beginning to trickle down,” said Damian Fraser, head of Caspian Research in Mexico City.

“There is a pickup in consumer spending as a result of growth in employment . . . and it does seem the service sector is responding to growth.”

In the aftermath of Mexico’s traumatic December 1994 peso devaluation, Mexicans went into the consumer equivalent of a coma as more than 1 million people lost their jobs and soaring interest rates threw millions more into debt.

The only bright spot for the last two years has been the export sector, bolstered by a cheap peso, that has steadily dragged the economy back from the brink of collapse.

Retail sales have remained lackluster throughout 1996, prompting charges that the government of President Ernesto Zedillo is fostering a recovery that looks good on paper but is not improving living standards.

Thursday’s report may have changed that. “We were thinking it would be a good recovery, but not this good,” said Carlos Rosales, an economist at Bancomer.

Analysts said it made the government’s 3.7% growth forecast for 1996 seem cautious. They said the figure may end up closer to 5% than 4%.

Mexico’s stock market, however, failed to rally on the news, and analysts said it was checked partly by a preliminary October trade report released late Wednesday that showed a sharp decline in the trade surplus to $277 million. The Bolsa stock index slumped 38.12 points, or 1.1%, to 3,320.04.

Almost as an inevitable byproduct of accelerating domestic consumption, imports of consumer goods surged more than 50% in October, the report showed.

The Finance Ministry said imports were fueled in part by pre-Christmas spending, but the rebound raised fears that the days of bulging trade surpluses--enjoyed by Mexico since the peso’s devaluation--may be ending.