Mexico’s Gross Fixed Investment Declines

On September 10, Mexico’s government reported that gross fixed investment declined by 2.1% m/m SA in June, after expanding 0.8% m/m SA in May, pushing the Q2 2010 performance to a contraction of 2.1% q/q SAAR, after expanding by 6.8% q/q SAAR in Q1 2010. On a year-over-year basis, investment grew slightly by 0.6% y/y, indicating a poor recovery, advancing 0.7% y/y in H1 2010, after collapsing 10.5% y/y in H1 2009.

As stated numerous times in the past, the latest result paints a gloomy scenario for Mexico’s domestic demand recovery in H2 2010, and perhaps in H1 2011, as the main engine of growth, the frail U.S. economy is experiencing a slowdown, with a 40% probability of a double dip. On the domestic front, still high inflation—although improving—, weak consumer confidence, slow progress in the labor market, contracting lending to the private sector and increasing security concerns are weighing on consumption and investment. We expect Mexico’s GDP to expand by 4.2% (3.5-4.5% range) in 2010 and by 3.2% in 2011 (3% to 4% range).

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients, LatAm Focus: Brazil’s Inflation Rising; Mexico’s Outlook Gloomy

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