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News Article

Slow Export Flows Threaten Economic Recovery

By Cinthya Alaniz Salazar | Thu, 07/29/2021 - 12:06

Corresponding with slow economic growth in June, the National Institute of Statistics and Geography (INEGI) reports an economic trade surplus in June worth US$762 million for an 86 percent shrinkage from last year when it stood at US$5.54 billion. Current figures are a result of a contraction in manufacturing shipments and a 52 percent increase in total imports, with butane and propane gas prices skyrocketing by 244 percent. Economic analysists warn that if this trend continues it would potentially impact economic recovery efforts.

Manufacturing shipments deflated due to value chain disruptions brought about by the pandemic, specifically in micro component shortages. Exports decreased by 1.4 percent in June with a 6 percent drop in auto manufacturing. From a 1.3 percent growth in May, in June the sector only recorded 0.2 percent growth. Although this marks its fourth consecutive month of growth, it is one of its lowest gains made thus far into the year.

Natural gas imports reached a daily average of 6.8 billion cubic feet (Bcf/d), a 25 percent increase in just one year. On several days throughout June, Mexico surpassed 7 billion Bcf/d, a new monthly record. With growing domestic demand during these summer months producers are worried about shortages, which has been pushing prices up, closing at  US$4.05 MMbtu last week according to Henry Hub.

Overall, however, during the first half of the year Mexico amassed a US$1.095 billion trade surplus, for annual increase of 29.2 percent.

"Reflecting the relative strength of foreign versus domestic demand, Mexico's trade balance linked three months with a surplus," said Julio Santaella, Head of INEGI, on Twitter.

Mexico’s economic growth has surpassed expectations, benefiting from receiving an updated growth forecast of 1.3 percentage points by the IMF. However, Pamela Díaz Loubet, economist for Mexico at BNP Paribas, warns that an exports slowdown could mean the economy could contract by 0.2 percent, equivalent to a 38,000 job loss. Thereby, in order to make up for losses in the auto manufacturing sector, Mexico will have to address value chain disruptions and or ramp up exports in different sectors if it intends to meet its forecasted growth projections.

Yet, this problem might be only temporary in light of the ongoing COVID-19 third wave considering foreign investment in manufacturing continues to pour into the country. Just earlier this month, Unilever announced that it would be investing US$275.2 million in the next three years to expand production capacity in its four manufacturing facilities. Japanese company Denso has invested US$51.4 million in an expansion projected in Silao, Guanajuato. In short, while exports have lagged, they are expected to bounce back but the timing will depend on how nations cope with the ongoing pandemic.

The data used in this article was sourced from:  
INEGI, Henry Hub
Photo by:   English
Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst