Mexico’s economy picks up speed

Times Staff Writer

Mexico’s economy in the third quarter expanded at the fastest clip all year thanks to homegrown industries such as services and construction, a sign that the nation may be better prepared than in the past to weather a U.S. economic slowdown.

Mexico’s gross domestic product grew by 3.7% in the three months ended Sept. 30 compared with the same period last year, according to government figures released Friday. That’s a major improvement over the first half of 2007, when growth failed to reach 3% in both the first and second quarters. A key barometer of economic health, GDP is the value of all of the goods and services produced by a country.

An increase in U.S. demand for Mexican manufactured goods helped lift the economy as the industrial sector expanded by 1.8%. Production of export cars and trucks was up 5.9% through the first 10 months of the year to nearly 1.4 million vehicles. But analysts say the real story was brisk activity at home.

“Mexico is strengthening domestic sources of growth,” said Alfredo Coutino, Latin America economist at Moody’s “That’s the way to minimize impacts from abroad.”


Services grew by 4.7% during the third quarter, led by a red-hot communications and transport sector, which expanded by 9.6%.

Government analysts credited that performance largely to Mexico’s humming cellular phone industry. Mexican wireless giant America Movil, controlled by billionaire Carlos Slim, added 1.4 million new subscribers in Mexico in the third quarter; revenue soared.

Easier credit is helping to pump up the Mexican economy. Record numbers of credit cards and consumer loans are fueling retail sales. Banks are also lending more to small businesses, which are buying inventory and equipment.

Mexico’s farm sector grew by a healthy 5.3% in the third quarter as farmers expanded production to take advantage of soaring commodity prices.

Construction also grew, by 2.4% between July and September, helped by home building and public works.

Coutino said the Mexican government would seek to prime the domestic economy over the next few years to offset the effects of an expected U.S. slowdown. Mexico’s Congress this month approved a record $236-billion budget for next year. Finance Minister Agustin Carstens said this week that President Felipe Calderon’s administration wanted to spend $250 billion on infrastructure projects over the next five years.

In the same vein, the nation is looking to lessen its trading dependence on the United States, the destination for about 80% of Mexico’s exports. Calderon traveled to Europe this year to drum up more business for Mexico’s electronics and farm products. Through September, Mexican exports to the European Union totaled $10.4 billion, up 28.2% over the same period last year.

Government economists project that these moves, coupled with a recent tax overhaul, will allow Mexico to grow a solid 3.7% next year even if the American economy softens.

Some economists say that may be too optimistic.

“Mexico has some sources of resilience, but they aren’t immune from a U.S. downturn,” said Alberto Ramos, emerging-markets analyst at Goldman, Sachs & Co. in New York. “Export growth will definitely suffer.”

Coutino said his biggest worry was that Mexican officials would become complacent with 3.5%-to-4% GDP growth when the country’s economy really needed to be expanding at 5% to 6% a year just to keep up with the growth in its labor force. He said lawmakers needed to continue with structural changes such as opening the energy sector and dismantling Mexico’s monopolies.

“This is no time to relax,” Coutino said. “They need to put on . . . gloves and boots and get to work.”