Mexican Economy Continues Its Surge

In stark contrast to the financial turmoil in Brazil, the government here reported Tuesday that the Mexican economy powered ahead in the third quarter at a rate of 8.1% and is on track for its highest annual growth in 16 years.

And while Mexico’s own fiscal crisis of 1995 rattled markets elsewhere in the world, this fast-recovering nation has continued to largely withstand the ongoing contagion of currency devaluations and market slumps in Brazil and Asia.

Finance Secretary Guillermo Ortiz told Congress the gross domestic product grew during the first nine months of the year by 7.3%, suggesting the annual growth rate will exceed 7% for the first time since the 1982 international debt crisis throttled emerging markets.

Analysts have attributed Mexico’s comparative immunity from the recent market turmoil in Asia and Latin America to its sound fiscal and monetary fundamentals, and Ortiz was quick to underline those achievements: “We see a favorable behavior of consumption, of investment, of exports and of savings.”

Brazil, its currency under attack, adopted an $18-billion austerity program last week and was busily denying rumors Tuesday that it will need an international bailout.

Jorge Mariscal, chief Latin American analyst for Goldman Sachs & Co. in New York, sounded a note of caution on Mexico’s growth rate. He said the current high rate partly results from the low base levels of last year. He added that continued high growth rates into next year could create balance-of-payments and financing problems.

He pointed out that Brazil’s current troubles stem largely from its massive $30-billion current account deficit as well as other payments coming due on foreign debts. While Mexico still has a comparatively insignificant current account deficit and smaller financing needs compared with Brazil, it also has fewer foreign currency reserves to cover its import needs, Mariscal added.

“From a financial perspective, I think Mexico has to be very cautious not to exceed its financing requirements in the next few months,” he said. “It’s not clear that financing will be so readily available, and it will be more expensive, so conservatism on the fiscal side and conservatism on the balance of payments side is probably a good recipe.”

The Mexican peso, which floats freely, in contrast to Brazil’s fixed exchange rate, closed virtually unchanged Tuesday at 8.26 to the dollar. The Mexican currency has traded in a tight range since it depreciated by about 6% in the worldwide upset during the last week of October. Most analysts welcomed the peso’s decline since the currency was widely regarded as overvalued.

The Mexican Bolsa stock index managed a slight rise of 7.74 points to 4,595.85 on Tuesday, bucking the trend of declines in the Dow Jones industrial average and Brazil’s Bovespa index.

Ortiz said the Mexican economy has created 800,000 new jobs this year, though that is short of the 1 million the country needs to create annually to keep even with the fast-expanding work force. Joblessness remains a critical problem across Mexico.

He also said private consumption would grow at least 5% this year, continuing the consumer recovery from the punishing recession that followed the December 1994 peso crisis when Mexico imposed its own harsh austerity program.

The growth surge has coincided with a slow but steady decline in inflation, which fell in October for the 22nd consecutive month to an annual level of 18.24 %, according to figures released separately by the Finance Secretariat last week.

The government last week forecast that growth in 1998 would be 5.2%. Ortiz did not give a new 1998 projection.

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Times researcher Rob Randolph in Mexico City contributed to this report.

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Mexico Churns Ahead

While uncertainty roils many Latin American economies, Mexico’s economic growth is surpassing all forecasts. Percentage change in Mexico’s gross domestic product, quarterly since 1995:

Third-quarter 1997: 8.1%

Source: Goldman Sachs