Mexico’s Dependence On U.S. Demand Spells Trouble For Weak Economy | 7/22/2019 | Staff
shankay (Posted by) Level 3
MEXICO CITY (Reuters) – Under the threat of U.S. trade tariffs, Mexico’s president has pledged to make his country less reliant on U.S. demand. But exports to its northern neighbor have been one of the few things driving Latin America’s second-largest economy this year.

Mexican gross domestic product increased 0.1% in the April-June period from the prior quarter, narrowly averting a recession that would have dealt a major blow to President Andres Manuel Lopez Obrador’s pledge to rev up the $1.2 trillion economy.

Mexico - % - Exports - United - States

Mexico still sends 80% of its exports to the United States and U.S. demand for its goods has been one of the few recent bright spots on its cloudy economic horizon.

Domestic demand has been modest, and gross fixed investment and foreign direct investment have fallen, the most recent data shows.

US - Manufacturing - Activity - Low - July

Meanwhile, U.S. manufacturing activity slowed to a near three-year low in July while hiring at factories shifted into lower gear, suggesting a further loss of momentum in economic growth early in the third quarter.

That all spells trouble for a country essentially joined at the hip with the United States, and analysts say Mexico’s reliance on U.S. demand could aggravate the risk of a full-blown recession in the coming months.

Export - Growth - Component - GDP - Question

“Export growth has been the most dynamic component of GDP in 2019 without question,” said Luis de la Calle, a former Mexican trade official. Without U.S. buyers, Mexico’s economy would be facing tougher times than it is already, he said.

Dragged down by mining, construction and energy production, Mexico’s industrial output fell 1.6% in the first five months of 2019, versus a year earlier. The only industrial sector bucking the trend was export-oriented manufacturing, which advanced 1.0%.

Dollar - Terms - Exports - % - Half

In dollar terms, exports climbed 4.2% during the first half of 2019 compared with last year, led by robust demand for goods from the automotive and electronic...
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