Research Dept. News
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Monthly Report, num 304 - July 2007
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International review - Mexico
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Mexico: economic activity slowing down
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Mexico grows by 2.6% while slowdown gets sharper.
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The Mexican economy grew by 2.6% year-on-year in the first quarter, thus sharpening its slowdown. Private consumption showed a slight rise moving up to 3.5% but this was not enough to compensate for the sharp slowdown in private investment which grew by 4.0% whereas it had begun 2006 with a rise of 13.0%. The public sector also put a sharp break on increases and, in turn, the foreign sector seems to have come to a sharp halt. Exports and imports were practically stagnant compared with last year whereas only six months ago they were showing two-digit growth rates.
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Industrial sector remains weak.
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Among the most recent economic activity indicators the general image is far from bright. Industrial production showed a slight rise in April with growth of 1.5% year-on-year following the stagnation seen in recent months. Manufactures ran a similar course with an increase of 0.8% while construction was up 1.5%.
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Inflation remains stable although with a very slight downward trend which could continue. In May, prices rose by 3.9% year-on-year while the core index (the general index less energy and foods) was up 3.7%. The official unemployment rate was down to 3.6% of the labour force in April thus eliminating the slight rise seen in 2006.
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Foreign sector stabilizes deficit.
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The trade balance seems to have stabilized its worsening situation without any real correction. While the cumulative balance for the past 12 months ending in April worsened to 10.5 billion dollars, the trend over the short term and the state of oil prices point to a reduction of this figure. Nevertheless, the basic problem is still there. The Mexican economy has a currency that in recent years has appreciated in terms of the other currencies of the region. As a result, the effective exchange rate, calculated in relation to a basket of currencies of its trading partners and keeping in mind inflation differences, has appreciated 12% since 1997. By comparison, the other major countries on the Latin American continent have undergone depreciations that have made them more competitive, as in the case of Brazil, the other major Latin American economy.
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