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ECONOMIC BRIEFINGS
Information provided by the Mexico Trade Commission-Bancomext’s
New York Office.
Solid external accounts.
The external sector often has been the Achilles heel
of the Mexican economy. However, moderate economic
growth combined with a freely floating peso is the
main explanation for the shrinking current account
deficit during the administration of President
Vicente Fox.
The latest data indicates that the key features of
the external sector are:
--Strong oil exports; and
--A significant increase in automobile and other
manufacturing exports.
The accumulation of net international reserves has
continued (68.7 billion USD in October). In recent
years, the government has consistently reduced the
amount of external debt (From 20% as a percentage of
GDP during Zedillo’s Administration to less than 10%
as a percentage of GDP in the Fox Administration),
while increasing debt denominated in pesos. Short-term
external debt is no longer a major issue.
Inflation On Target
Inflation in September stood at 1.01%, pushing up
the accumulated figure to 3.42%. Since mid-2005,
inflation consistently has been within the Bank of
Mexico (Banxico) target band. The central bank has
accumulated strong credibility in its conduction of
monetary policy.
Public Finances Surplus
The Ministry of Finance and Public Credit on June 30
published information that indicates that from
January to May the government accumulated a surplus
of 107.7 billion pesos ($9.8 billion), a year-on-year
increase of nearly 50%. Although high oil prices
partly explain the rise, non-oil revenues also have
been increasing significantly. The government is
expected to close this year with a balanced budget
or small surplus.
Mexico Will Rank 5th In
Automotive Production
Mexico is currently eleventh in the world in
automotive production and by 2011 will rank fifth,
competing with stronger economies such as India,
United States, China and Slovakia. In a report,
PricewaterhouseCoopers affirms that this competition
must be sustained in the flexible and diversified
growth of the companies in the sector that must use
with better efficacy and efficiency the supplies,
trade agreements, geography and customs benefits
provided by Mexican government. There is no doubt,
the report says, that Mexico is an attractive choice
for automotive industry looking to reduce and
improve processes, without forgetting quality and
value added that the world market calls for.
US Magazine Gives
Recognition To Mexican Plant
Cordis, a Mexican maquiladora located in Ciudad
Juarez and manufacturer of medical supplies,
affiliated company of Johnson & Johnson, was chosen
by Industry Week as one of the 10 best in North
America. Johnson & Johnson, which has plants in
Holland, the USA and Mexico, have plans to reach 2
thousand 500 jobs in five years, compared to the
current one thousand 966 jobs. He added that as
things are now, there is certainty that local
investment will continue growing.
Detroit Far South
For Mexico, the recent groundbreaking of a new $650
million auto factory was worth celebrating. San Luis
Potosí, where the assembly plant (now under
construction) is, is expected to eventually employ
up to 1,800 people and churn out as many as 160,000
compact cars a year.
The reason for Mexico’s new wave of growth is
twofold. First, it is next to the world’s largest
auto market, allowing greater production integration
because auto companies can easily ship cars and
parts by truck and rail. And second, it is still
cheap to operate here compared with the United
States, where unionized workers earn at least $27 an
hour and benefits can double or even triple the
total cost. By comparison, Mexico’s typical auto
industry wage of about $3.50 an hour for an
experienced worker — which doubles with benefits —
looks like a bargain.
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