Look for Mexico’s economy to grow with the U.S. through 2012

(Ian Sawicki/MEDILL)

Although fears of a Greek exit from the European Union continue to rattle a skittish global economy, the still-growing U.S. economy remains the best predictor of overall Mexican economic growth, say experts.

“If I had to point my finger at something that would be key for growth in Mexico in the next year, it would be manufacturing growth in the U.S” said Nur Christiani, a growth strategist for J.P. Morgan in Mexico City in a phone interview.

Christiani said that as Mexico’s biggest trade partner, the country producing beloved name-brand goods such as Levi’s jeans and Volkswagen automobiles for American consumers, the U.S. plays a singularly important role in Mexico’s economy.

As of late, the U.S. economy has struggled to maintain a healthy GDP clip of 3 percent—a benchmark typically associated with a healthy, growing economy. Since the second quarter of 2009, when the current recovery period started, the U.S. has averaged GDP growth of only 2.4 percent annually.

“This low growth means that the U.S. economy has actually been falling further and further behind the normal trend. Therefore, it is not a recovery at all,” Harvard economist Robert Barro wrote in a WallStreet Journal op-ed on Monday.

Mexico’s internal fundamentals strong

Mexico’s GDP expanded by 4.6 percent in the first quarter of 2012, after rising 3.9 percent in 2011’s fourth quarter. This compares with U.S. GDP growth of 1.9 percent in the first quarter and 3.0 percent in the final quarter of last year.

Analysts polled by Bloomberg LP expect the Mexican economy to grow by 4.15 percent in the second quarter, and at least 3.85 percent on average in the third and fourth quarters of 2012. They are more bullish going into 2013, predicting GDP will expand by 4 percent in the first quarter of next year.

Central bankers at Banco de Mexico have held the country’s inflation rate at around 3 percent by targeting its key policy rate at 4.5 percent for nearly three years.

The bank has also been auctioning off $400 million in U.S. currency reserves daily since May 23. The sell-off is intended to ease peso destabilization as foreign bankers shed pesos and other emerging market currencies on worries about fallout from the Eurozone debt crisis.  The central bank is dollar-rich from its stake in state-owned petroleum giant Petróleos Mexicanos, which owns assets worth $415 billion dollars.

Mexican Stock Exchange Mexican Bolsa IPC Index (MEXBOL)

Mexico’s biggest and primary index of stocks, the MEXBOL, is up 5.5 percent in the past 52 weeks through June 5, and is up a more dramatic 17 percent from the August 2011 low. Perhaps the biggest factor weighing in favor of sustained growth in the year to come is that the central bank has indicated it may cut interest rates further.

However, the MEXBOL composite has slumped in the last week with other emerging markets because of continued global uncertainty over the stability of Greece, Spain and Europe as a whole.

U.S. economic growth has also shown nascent worrisome signs. A key indicator of U.S. factories, the Institute for Supply Management manufacturing index, slumped to 53.8 percent in May from a 10-month high of 54.8 in April. The larger-than-expected drop triggered a sell-off in U.S. stocks even though any reading above 50 for the ISM index indicates growth.

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