Mexico’s economy puts on brakes

Times Staff Writer

The woes of the Big Three U.S. automakers are weighing heavily on Mexico. In the first quarter, the economy grew at its slowest pace in more than a year, largely because of slumping vehicle production.

Gross domestic product expanded at a 2.6% annual rate compared with the same quarter a year earlier, the government reported Thursday. That was below most analysts’ expectations and down sharply from the 4.3% annual growth rate registered in the fourth quarter of 2006. GDP is the value of all goods and services produced.

A slowing U.S. economy is weakening demand for Mexican goods in the U.S., the destination for 80% of Mexico’s exports.

This was seen clearly in Mexico’s manufacturing sector. Industrial production barely budged in March, up just 0.2% from the same month a year earlier. But the number many economists focused on was auto production, which was off 12.4% in the first three months of the year compared with the first quarter of 2006.

Ford Motor Co., General Motors Corp. and DaimlerChrysler’s Chrysler Group dominate auto manufacturing here. Together they accounted for almost 60% of the nearly 2 million vehicles produced in Mexico last year, most of which were exported to the U.S.


The Big Three’s shrinking U.S. market share is putting the squeeze on one of Mexico’s most crucial industries. Chrysler’s Mexican production was off a whopping 26% in the first quarter. GM’s was down 23.4% and Ford’s slumped 18.8%.

“The automobile industry in Mexico very much reflects [the Big Three’s] problems in the U.S.,” said Bertrand Delgado, a senior Latin America economist for New York consulting firm Ideaglobal Inc.

Apart from electronics, no industry is more important to Mexico’s trade balance than the automotive sector, which accounts for about 15% of the nation’s exports. Last year Mexico exported more vehicles and auto parts (about $38 billion worth) than crude oil ($35 billion), according to statistics from the Bank of Mexico.

The sector is also a major employer, providing jobs for nearly half a million Mexicans.

Mexico’s auto production rebounded a bit in April, up nearly 11% over the same month in 2006. But Delgado said it was too early to project a turnaround. “We likely won’t see the growth that we saw last year,” he said.

Mexico’s GDP growth also was hammered by its construction sector, which expanded at a lackluster 2.1% pace in the first quarter compared with the first three months of 2006.

Delgado said that was partly because last year’s figures were artificially high because of frenetic rebuilding activity after Hurricane Wilma, which hit in October 2005, and generous government infrastructure spending in an election year.