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 Business News | September 2006 
Mexico Economy Can Weather U.S. Downturn, Finance Minister Says
 Guillermo Parra-Bernal & Patricia Hidalgo - Bloomberg
| | Mexico Minister of Finance Francisco Gil Diaz smiles as he talks during an interview Tuesday, Sept. 19, 2006 in Singapore. Gil Diaz welcomed the move of the 184-nation International Monetary Fund approved reforms to increase the voice of emerging economies, but said it would not result in a major change in the fund's policies, given the strong influence still wielded by the U.S., which holds a 17 percent share of the votes, an effective veto. (AP/Apichart Weerawong) |
The Mexican economy can weather an economic slump in the U.S., its biggest trading partner, as building and manufacturing drive growth, Finance Minister Francisco Gil Diaz said.
A U.S. recession "clearly worries me because Mexican exports depend almost exclusively on U.S. demand," Gil Diaz said in an interview in Singapore, where he's attending the International Monetary Fund and World Bank meetings. "But we are going through a good moment in our construction industry. I see more factories settling down in Mexico."
Economists such as Nobel laureate Joseph Stiglitz say the U.S. economy, the main destination for 80 percent of Mexican exports, may fall into recession because of rising borrowing costs and energy prices. Gil Diaz said Mexico's expansion may slow to 3.5 percent in 2007 mainly because of the U.S. economy, though buoyed by a surge in homebuilding that's creating jobs.
Gil Diaz also raised his growth estimate to 4.5 percent this year, from a previous prediction of 4.2 percent on Aug. 30, and matching a central bank forecast. That would be the fastest rate of expansion in Latin America's second-biggest economy since 2000.
Mexico's expansion has quickened as the price of oil, its biggest export, rose to records and as growth in the U.S. in the past year fueled demand for Mexico-made cars. Exports jumped 22 percent to $123 billion in the first half.
The economy grew more than 4 percent for a second straight quarter in the three months ended June 30, giving the country its strongest first half in six years. Industrial production rose more than 5 percent for a third month in July. Car production rose 21 percent in July from a year ago.
Oil, Wal-Mart
Mexico's economic expansion - while quickening - still lags behind growth rates of many other Latin American countries because of its government's failure to push through legislation to boost investment in energy, improve tax collection and make labor laws more flexible. In the past five years, Mexico's economy grew 1.8 percent a year on average, less than half the 4.4 percent average annual growth rate in Chile.
A drop in oil prices, Mexico's biggest source of tax revenue, would force the incoming administration of Felipe Calderon to cut spending, Gil Diaz said. New laws passed in Congress restrain spending and force the government to keep a balanced budget.
Falling oil prices may also help boost demand in the U.S. for Mexican-made goods, helping counter the decline in government revenue, Gil Diaz, who plans to leave the ministry for Stanford University next year, said in the interview.
"It's curious, but a decline in oil prices can bring about a positive effect on our economy," Gil Diaz said. "That would help offload the burden of high gasoline prices on consumers in the U.S., giving them some additional spending power. We would gain from that."
Mexico targets a balanced budget this year after posting a deficit of 0.1 percent of gross domestic product in 2005, the smallest in nine years. A new law published this week requires the government to justify any deficits. The legislation will help keep fiscal discipline, Gil Diaz said.
Clearance for Wal-Mart de Mexico SA, Latin America's largest retailer, to open a bank in Mexico for loans and financial services to consumers and businesses, will be announced "within weeks," he said.
Walmex, as the Mexico City-based company is known, said on Aug. 2 that it applied for a license to operate the banks out of its 826 stores and to provide credit, charging lower fees than other banks. Walmex joins Grupo Famsa SA and Grupo Elektra SA in offering loans and financial services to consumers and businesses not served by banks.
"This will help a lot in terms of competition" in Mexico's banking industry, Gil Diaz said, of Walmex's banking license bid.
To contact the reporter on this story: Guillermo Parra-Bernal in Singapore at at gparra@bloomberg.net |
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