Economics: Factory Exports Weak Despite Peso

MEXICO - Report 27 Jan 2016 by Mauricio Gonzalez and Ernesto Cervera

Mexico’s manufacturing exports turned in a mixed performance over the course of 2015, as automotive shipments continued to grow (although the pace of expansion has tended to slow), while the main components of the non automotive segment experienced contractions.

Given the extent to which the peso has weakened against the dollar at a time of declining petroleum revenues, the relevant question that arises is whether there might be a relatively stronger expansion of growth in manufacturing and non petroleum exports that could suffice to offset the petroleum deficit.

Unfortunately, the local currency’s evolution has not shored up the country’s export performance because the peso’s slide against the dollar has come at a time when most currencies have lost value against the greenback. As a result, a softer peso has not provided any additional competitive edge over the other countries that act as major suppliers of US imports.

In general, Mexico’s non petroleum exports tended to slow during 2015, and as we discuss in this week’s Outlook, the prospects for 2016 are not much more promising.

In a related development, the authorities reported that the number of people employed in manufacturing enterprises grew at a 12-month rate of 2.6%, weaker than the average expansion accumulated between January and November of last year (3.2%). It is important to note that factory job growth climbed as high as 3.5% during some months of 2015.

The branches of manufacturing that registered the most negative employment performance in November were the production of oil and coal derivatives, and chemical products.

The impact of these negative results was largely offset, however, by the positive numbers recorded by industries related to the automotive industry, such as transportation equipment and computer and communications equipment and electric accessories.

Lastly, the weakness of manufacturing production and export data from the most recent months paint a less positive outlook for factory employment, at least for December and the first half of 2016.

In other news, Mexico’s statistics office (Inegi) reported that the Consumer Price Index (CPI) recorded a scant 0.03% rise in prices for the first half of January compared to the second half of December; the market consensus anticipated a 0.10% increase.
A 0.09% sequential decrease in the prices of livestock products, led by a 2.36% drop in the price of eggs, helped limit the rise in the sequential rate. As was the case of the ebbing of pressures on a sequential basis, the prices of livestock products helped to restrain the pace of 12-month inflation. Whereas livestock product prices rose 13.82% year over year during the same period a year earlier, in the most recent fortnight they skidded 1.82% lower. There was a similar reversal of inflation in the case of energy prices, which declined 0.84% in the most recent report after having jumped 4.44% during the first half of January 2015.

Although headline inflation continues to hover less than half a point above 2%, we at GEA look for inflation to end the current calendar year at 3.39%. We need to keep in mind that an historical drop in telephone rates (mandated by the country’s telecommunications reform) kept a lid on inflation throughout 2015, and that effect will be greatly dissipated in 2016. Moreover, we expect the weakened peso to begin to be reflected in higher goods prices.

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