Wednesday, December 19, 2012

Mexico -- South Of the Border Growth Dynamo

Last week, I noted that Japan, UK and EU are all "zombie economies" -- economies that are for all practical purposes dead in the water right now.  However, other regions of the world are doing very well -- especially those south of the border.  While Mexico does have some serious problems (the drug war and over 25,000 dead come to mind, along with systemic corruption), the overall economy has actually done very well since the end of the great recession.  Consider the following data points from the Central Bank's latest Inflation Report:

Overall GDP has grown strongly.   The chart on the right indicates that the quarterly percent change has been positive since 2009 and has been in the .75-1.5% range.  The chart on the right shows that the annual rate of change has been positive as well -- 4% appears to be a good average to use for the last few years.

The left chart shows ANTAD sales (retailer's association) have been rising strongly over the last five years.  Also note these moved sideways during the recession.  The right side also shows retail and wholesale sales, both of which have risen since their recession lows and both of which are now above their pre-recession peaks.

A reason for the increase in consumption is the strong growth of wages.  The left charts shows that wages have been growing in the 4% range for the last few years.  The right chart shows that consumer confidence -- which although below pre-recession levels has been rising for the last few years.  Finally, we see that remittances from the US are actually down.

Investment has also been very strong.  The left chart shows that overall investment (black line)  has been rising consistently since the recession and is now above pre-recession levels.  It has risen because of incredibly strong machinery and equipment investment (red line) and overall construction.  Machinery investment has increased as a result of both domestic and imported machinery (middle chart).  Finally, overall confidence for producers is strong.

The left chart shows that total activity has been strong for the industrial and service sectors, while the middle chart shows that manufacturing has been strong -- even without a bump from auto production (the red line).  Finally, total vehicle production (left char) is still very strong.

Finally, notice that the economy has adequate funding from both foreign and domestic sources.

The bottom line is that  -- despite the above mentioned problems -- the overall Mexican economy is doing very well, especially compared with the rest of the world.