Mexico’s Trade Deficit Grows to $1.18 Billion

Mexico’s trade deficit widened more than expected in November on the back of higher consumer purchasing power and confidence in the economy that spurred the buying of imported goods ahead of Christmas.

The trade shortfall was $1.18 billion, more than a revised deficit of $814 million in October and $762 million in November 1999, the Finance Ministry reported. The November deficit also was higher than a forecast of a $929 million deficit in a Bloomberg News survey of nine economists.

“Consumer demand is still very strong,” said Pablo Alvarez, an economist at Bursametrica in Mexico City.

Imports in November rose 14.8% to $15.895 billion from a year ago, and exports rose 12.9% to $14.715 billion for the same period.

Most firms gave workers wage increases of 10% or better, beating the inflation rate for the first time in many years. Inflation is expected to be about 9% this year, compared with 12.3% last year. Stores stocked up on imported toys, clothes and electronic goods for what may have been one of the best Christmas shopping seasons since Mexico’s economy plunged 6.2% in 1995.

Consumers also spent freely this Christmas season amid confidence that the economy would avoid the crises that have slammed Mexico during the last four transfers of presidential power. Government officials slashed deficit spending and reduced foreign borrowing to smooth the Dec. 1 transfer of power to President Vicente Fox.

A slowdown in the U.S. economy and subsequent decline of Mexico’s export growth could filter through the economy and reduce consumer spending. But that hasn’t shown up in retail sales, which soared 10.5% in October and 13% in September.

Booming consumer demand for imports was offset a bit by robust export growth, which has been driven all year by foreign factories, known as maquiladoras, that import component parts and assemble them for export.

Under the country’s free-trade agreements with the U.S. and Canada, the European Union, Israel and several Central and South American countries, Mexico has become an industrial hub for global companies looking to export.

Even with growing manufacturing exports, the trade deficit is likely to balloon even higher in December because of falling oil prices. Oil-related exports make up about 10% of Mexico’s exports.