Economics: Current account balance during 2Q 2019

MEXICO - Report 26 Aug 2019 by Mauricio Gonzalez and Francisco González

During the second quarter of 2019, the current account balance registered a net surplus of 5.14 billion dollars, the highest such level since officials began publishing the data roughly four decades ago. In fact, Mexico hadn’t registered a current account surplus since the second quarter of 2010. While the public sector current account continues to show a significant deficit, the private sector account delivered a 14.68 billion dollar surplus, after having posted a 122 million dollar deficit in the first quarter of 2019. This strong showing reflected an increase in manufactured goods exports, which totaled 106.05 billion dollars in the most recent quarter, and an extension of the growth trend in remittance inflows.

The financial account balance surplus fell sharply between the first and second quarters owing to a more than fifty-percent reduction in FDI compared to the first quarter of 2019; FDI was also 36.8% lower than in the second quarter of 2018, with the most pronounced contraction on the level of reinvested profits, but also extending significantly to new investments (-29.1%).

The surplus reflected the extent to which non petroleum imports fell in response to the economic slowdown in Mexico, a development that was especially stark in its private investment component, which has experienced a significant contraction in the amount of machinery and equipment the country imports.

While Mexican manufacturers stand to benefit in the short term from Trump’s tariffs on Chinese imports, the weakening of the global economy and the risks to growth and stability arising out of the intensifying trade war could send capital away from emerging economies and cause Mexican country risk to climb, although the peso is displaying considerable stability against the dollar, and foreign holdings of Mexican government bonds have remained relatively stable over the past year. However, the announcement that the monetary policies of the world’s main economies are going to be subject to a new easing of policy going forward could help offset this effect by injecting renewed liquidity following the tightening moves observed in recent years.

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