Mexico Says Recession Has Ended, GDP Edges Up 0.7%

Mexico has climbed out of recession and expects to post 0.7% quarterly growth amid expectations that a U.S. economic resurgence will propel it even higher later this year, the finance minister said Friday.

Francisco Gil Diaz told a convention of Mexican bankers here that signs of a turnaround are weak but unmistakable and that the recession has ended after five consecutive quarters of economic shrinkage.

Gil Diaz said gross domestic product rose 0.7% over the first three months of the year. The economy was stagnant in 2001.

To reinforce his case, Gil Diaz said that industrial production showed month-to-month gains in January and February and that exports by maquiladoras--the plants concentrated in border areas that are a prime motor of manufacturing growth--rose 2.2% in February.

“Taken together, observing the monthly evolution of the economy, there exists evidence that the Mexican economy is beginning a new phase of growth,” Gil Diaz said.

Hector Rangel Domene, president of the Mexican bankers’ association, concurred, saying faint but unmistakable signs of a recovery are evident amid the bumps in consumer confidence and credit demand and especially in the 100,000 jobs created after last year’s declines.

Loan applications from Mexican businesses still have not significantly increased, but that’s because of the time it takes before Mexico feels the effects of the U.S. upturn.

“We’re still waiting to feel the favorable impact of a U.S. recovery,” Gil Diaz said, partly because Mexico’s economy is not closely linked to high-technology and defense industries, the sectors that have benefited most from the incipient recovery.

Domene said that Mexico’s economy should grow 1.5% this year and that in “the second quarter the recovery will be much more evident.”

In recent years, Mexico has become increasingly dependent on the U.S., where one quarter of Mexico’s economic output and 80% of its exports end up.

Guillermo Ortiz, the head of Mexico’s central bank, said the peso continues to be strong, not because of any central bank policy but because the peso, and by implication Mexican financial and business assets, are in high demand in the global marketplace.

The reasons for the investment growth include Mexico’s improving productivity, low inflation and prospects for growth, Ortiz said.

Foreign investment in Mexican stocks and bonds grew almost 22% in the first quarter compared with the year-end closing, attracted by good economic prospects and the upward revision to investment grade of Mexican sovereign debt by the three principal debt-rating companies.

Other bullish signs of a recovery are that total internal investment in Mexico increased in January and the index of business confidence for increased production, sales and jobs rose in February, Ortiz said.

But Mexico’s long-term growth prospects are challenged by the lack of bank credit, which has effectively dried up since the 1995 banking crisis.

In an address Thursday, President Vicente Fox promised a legislative campaign to free up credit. He urged bankers to help by “dusting off the loan machinery ... so that the financial system returns to becoming a link between savings, investment and growth.”