Mexico’s Economy Strengthens

Mexico’s economy grew in the third quarter at the fastest clip in four years, helped by a revived export sector and strong consumer demand at home.

The nation’s gross domestic product was up 4.4% over the July-September period a year ago.

It was the third straight quarter that growth exceeded 3.5% and the best quarterly performance since the height of the technology boom, when Mexico’s economy grew by 4.7% in the final three months of 2000.

The strong showing was consistent with new World Bank projections that Latin America as a whole will grow 4.7% this year, after three years of virtual stagnation. Much of the region is benefiting from higher prices for oil, copper and other commodities, as well as from growth in the U.S. and China, which are major customers for those products.

“The good times are back in the region,” said Guillermo Perry, the World Bank’s chief economist for Latin America and the Caribbean. “The big question will be: For how long can it continue?”

For Mexico, the answer could well lie with the health of the U.S. manufacturing sector, which is once again pouring money and orders south of the border.

Maquiladora factories -- foreign-owned plants located mainly in northern Mexico that produce goods sent to the United States and other countries -- added more than 81,000 jobs in the first eight months of the year.

That was a 7.8% gain after three straight years of losses.

In the quarter, export shipments were up. So was direct foreign investment.

Auto giants Toyota Motor Corp. and DaimlerChrysler, appliance maker Electrolux and printer manufacturer Lexmark International Inc. are among those expanding existing facilities or building new ones to take advantage of Mexico’s relatively low-cost labor and proximity to the United States.

Christian Stracke, a Mexico analyst with New York-based research firm CreditSights, pointed to the maquiladora sector for lifting the broader economy.

“The general recovery in the export sector has washed over into domestic demand,” he said. “It’s kind of a natural progression.”

Rob Rosi, whose San Diego firm Tacna International Corp. helps small businesses relocate south of the border, said Tacna continued to see strong interest from California companies looking to escape the Golden State’s high business costs.

However, he said, orders for electronic parts at his company’s own maquiladora operation in Tijuana have leveled off after a strong rebound earlier in the year.

“I’m not sure if it’s due to [competition from] China or what,” said Rosi, Tacna’s president.

Indeed, analysts said, Mexico’s sizzling factory sector could be cooling in tandem with that of the U.S., where some recent manufacturing indicators have shown activity to be slowing.

“Growth may have reached a cyclical peak,” said Collin Peng-Sue, an associate economist at Econony.com who covers Mexico.

On the bright side, Mexican consumers appear to be picking up the torch.

Retail sales in August were up 4.2% from the same period in 2003.

Same-store sales for Wal-Mart de Mexico, the nation’s largest retailer, jumped 8.3%.

Mexico isn’t the only Latin American economy humming.

In the second quarter, Venezuela’s GDP grew by 13.6%, Uruguay posted an 11.5% gain and Argentina’s economy surged by 6.7%, according to World Bank figures.

The World Bank’s Perry said the region’s growth would probably moderate in 2005 as commodity prices eased.

Still, he said, barring a major shock to the U.S. or Chinese economies or “silly mistakes” by Latin governments, the region’s GDP on average should expand by a solid 3.7% for the next couple of years.

He said the return to growth gave Latin American leaders a window of opportunity to continue paring their debts and making needed economic reforms, rather than spending windfall oil and commodity profits.

“This is an opportunity for them to reduce the vulnerabilities in their economies,” he said.