http://www.chron.com/disp/story.mpl/bus ... 22518.html

Aug. 16, 2006, 11:28PM

Mexican economy 'firing on all cylinders'
Oil, car exports lead to growth of over 4 percent
By THOMAS BLACK
Bloomberg News

Mexico's economy grew more than 4 percent for a second straight quarter, giving the country its strongest first half in six years, as car and oil exports surged and lower interest rates buoyed spending, the government said Wednesday.

Latin America's second-biggest economy expanded 4.7 percent in the April-to-June period, outpacing a median 4.4 percent forecast from 15 analysts surveyed by Bloomberg. The second-quarter growth follows an expansion of 5.5 percent in the first quarter.

"This is an economy that's firing on all cylinders," said Gray Newman, chief Latin America economist with Morgan Stanley in New York. "Consumption is doing well, investment is doing well, and external demand is doing well."

The pickup is boosting tax revenue, providing President Vicente Fox's successor with cash he can spend on infrastructure projects and social programs in the impoverished southern part of the country.

The July 2 presidential vote, which is under appeal in a Mexican court, highlighted a divide among voters. Felipe Calderon, the candidate from Fox's party, won a majority throughout the northern states while rival Andres Manuel Lopez Obrador took the vote in southern states.

Calderon, whose margin was 0.6 percentage point, said he wants to raise government spending in the south to ease poverty and close that wealth gap between the two regions.

Lopez Obrador appealed to voters in the south with his pledges to boost spending on the poor.

Mexico's expansion has quickened as the price of oil, its biggest export, rose to record highs and as growth in the U.S. fueled demand for Mexican manufactured goods such as cars.

Mexico's economic expansion — while quickening — still lags behind the growth rates of many other Latin American countries because of Fox's failure to push through legislation to boost private investment in energy, improve the level of tax collection and make labor laws more flexible, said Luis Raul Rodriguez, chief of economic analysis for the Mexico City-based brokerage firm Vector Casa de Bolsa.

Wages rose an average of 4.4 percent in the first seven months this year, outpacing inflation, according to the central bank.

The peso has strengthened more than 5 percent since the election. On Wednesday, the peso rose to 9.2954 cents from 9.2666. The dollar fell to 10.7580 pesos from 10.7915.