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Growth
in industry slows in November.
On 11
January, the National Statistical Institute (INEGI) announced that
November industrial production increased 4.6% in real terms over the same
month in 1999. While most analysts had already anticipated a
slowdown from the 7.2% growth registered in October, the November reading
was still well below market expectations of 6.0%. The dismal
November reading was also the lowest annual growth rate registered since
October 1999. The manufacturing industry suffered a major slump,
down to 5.4% from the 8.8% growth recorded in October. In part,
weaker U.S. demand prompted Mexican manufacturers to cut production, which
reduced growth in the maquiladora industry from 14.1% year-over-year in
October to 11.4% in November.
Record
growth in 2000. According to preliminary
information provided by the Central Bank -- official numbers will be
published on 15 February -- the economy expanded by a whopping 7.1% last
year, the highest growth rate since 1981. This is in line with
Consensus Forecast numbers. However, despite what looks like record
GDP growth in Mexico in 2000, evidence of a cooling-off of economic
activity is growing. In November, the economy as measured by the
monthly indicator for economic activity (IGAE) increased by 5.3% compared
to November 1999. This was the lowest year-over-year growth rate
registered since October 1999 and also well below market expectations,
which hovered around 6%. Services expanded by 6.2% leading other
sectors, driven by strong growth in commercial activities and in the hotel
business. Manufacturing trailed services with a growth rate of 4.6%
year-over-year, significantly down from 7.3% growth registered in October.
Agriculture experienced a contraction of 1.0%, following a surprisingly
steep decline in vegetable and fruit production. In October,
agriculture had been the fastest growing sector with 7.4% growth.
The November reading confirms that economic activity is slowing down in
Mexico. In fact, November marks the first decrease in the average
annual growth rate since August 1999, albeit at a high level of 7.1%, and
seasonally adjusted data point towards a contraction of 0.12% over October
2000. Other indicators suggest that slower growth in the
manufacturing industry, originating in weaker demand from the U.S., is
also spilling over on domestic demand. Retail sales expanded by 8.3%
year-over-year in November, representing a marked slowdown from the
double-digit growth figures registered throughout most of 2000. On
the other hand, November gross fixed investment came in somewhat above
market expectations at 10.5% over the same month in 1999 - higher than the
9.6% growth registered in October.
Slowdown
ahead. Further evidence of a slowdown in
economic activity stems from the “leading indicator”, recently
introduced by the National Statistical Institute (INEGI). In October
2000, the leading indicator, which aggregates information from industrial
production, construction, stock markets, oil prices and hours worked in
the manufacturing sector, registered a decline of 0.7 percentage points
over September 2000. This suggests that economic activity in
the coming months will continue to grow but at lower rates. The
unmistakable signs of a slowdown have prompted panellists to apply
significant cuts to their projections, which presages a far more
pessimistic picture for economic performance this year than the
government’s 4.5% growth scenario.
Inflation
plummets.
In January, consumer prices
increased by 0.55%. This was well below market expectations of 0.75%
and also the lowest monthly increase registered in January since 1972.
As a consequence, the annual rate dropped from 9.0% in December 2000 to
8.1% in January, also the lowest level since the outbreak of the Peso
crisis in December 1994. The favourable development of consumer
prices in January was the result of a moderate increase in agricultural
prices which successfully countered more pronounced price increases in
housing, health and education categories. Core inflation, which
excludes the more volatile agricultural prices, increased by 0.77% and
remained in line with market expectations for the monthly CPI increase.
Panellists still see the Central Bank’s target to bring down inflation
to 6.5% by year-end as overly ambitious. Additionally, the Central
Bank’s target for 2002 (around 4.5%) and 2003 (3.0%) are also seen as
too optimistic by panellists, who expect consumer prices to experience
higher increases.
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