Vexing signs for Mexican growth
Mexico’s gross domestic product grew by 2.8% in the second quarter compared to the same period last year, boosted by a bustling service industry and a rebounding farm sector, according to government data released Thursday.
That was an improvement over the 2.6% economic growth rate posted in the first three months of the year. Still, it was lower than the 3.1% pace many analysts had expected.
A decelerating manufacturing sector suggests that Mexico is starting to feel the effects of the slowdown in the United States, its biggest export market. And the report contained worrying new evidence that Mexico’s troubled government-run oil industry was starting to weigh on the nation’s economic health.
Growth in the mining and minerals sector declined 9.1% during the second quarter, thanks largely to tumbling output by state-owned oil giant Pemex. The company said Thursday that production for the first seven months of the year averaged 2.84 million barrels a day, a 10% drop from the same period in 2007. Exports slumped 16.3% over the same period.
Mexico’s largest oil field, Cantarell, is in free fall, with July production down 37% from the same month a year ago.
The world’s sixth-largest petroleum producer, Mexico relies on oil revenue to fund 40% of its federal budget. But years of under-investment in the sector have left the nation with less than a decade’s worth of proven reserves. Mexico’s Congress is bickering over how to strengthen Pemex and increase production, though some analysts doubt that the proposals offered so far will do much to stop the slide.
“The situation is bad and it’s approaching a disaster,” said Alfredo Coutino, Latin America analyst with Moody’s Economy.com “Mexico’s oil is vanishing. We’re starting to see it show up in economic growth.”
After a strong start to the year, Mexico’s economy is weakening. The Bank of Mexico has raised interest rates three times since June in a bid to tame rising inflation. But the hikes are acting as a brake on economic growth by making it more expensive for businesses and consumers to borrow.
Industrial production is softening. So are consumer confidence and retail sales. Mexico’s largest retail group said its members’ same-store sales in July dropped to the lowest level in 19 months. Unemployment in July reached 4.15%, the highest level in 3 1/2 years.