Thread: Mexico's Economic Growth Likely Quickened in Second Quarter

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Mexico's Economic Growth Likely Quickened in Second Quarter

Aug. 16 (Bloomberg) -- Mexican economic growth probably quickened in the second quarter, led by a jump in investment as companies including Brunswick Corp. build plants to meet rising demand in the domestic market and in the U.S.

Gross domestic product, the broadest measure of a country's output in goods and services, expanded 4 percent from a year ago after growing 2.4 percent in the first quarter, according to the median estimate from 14 economists in a Bloomberg survey. The government is scheduled to release the GDP report today at 3:30 p.m. New York time.

``As private consumption rebounded, capacity utilization increased and therefore you have an expansion in private investment,'' Paulo Leme, managing director for emerging markets at Goldman Sachs & Co., said in a telephone interview from Miami.

Consumer demand stands to rise further in the second half of the year, leading more companies to invest as the central bank prepares to cut the benchmark lending rate, said John Welch, chief Latin America economist with Lehman Brothers Inc. Central bankers will cut the overnight rate from 9.75 percent as soon as this month amid signs inflation is slowing, Welch said.

Demand for Mexican goods is also rising in the U.S., where the economy has begun to strengthen in recent months. U.S. industrial production grew 3.9 percent in June from the year- earlier period and factory utilization rates rose to 80 percent of capacity, the highest since December 2000. The U.S. buys 85 percent of Mexico's exports.

Brunswick Plant

Brunswick, the world's largest maker of recreation boats and bowling equipment, said in May it plans to build a $30 million bowling-ball plant in Reynosa, a Mexican border town across from McAllen, Texas, to cut costs and help meet demand in the U.S., Canada and Mexico. Brunswick, whose global sales rose 12 percent in the second quarter, already has two boat factories in Reynosa.

``The equipment in this facility will be state of the art, the newest equipment possible that's known to the industry,'' William Gress, president of Brunswick's Latin America operations and vice president of supply-chain management, said in a telephone interview from Chicago.

Gress said the company also considered China and Eastern Europe before deciding to build the plant in Mexico.

``Mexico came out way ahead,'' he said. ``First and foremost, Mexico is more competitive because of shipping costs and proximity to market.''

SKF, Black & Decker

Brunswick plans to hire about 200 workers in the bowling- ball plant, adding to the 1,000 it employs at the boat factories, Gress said.

SKF AB, the world's largest maker of roller bearings, said in June it plans to close two automotive-parts factories in the U.S. and shift some of the production to plants in Guadalajara and Puebla. Black & Decker Corp., the biggest U.S. maker of power tools, in April said it plans to boost output at a plant in Reynosa to offset lost production from a plant in Fayetteville, North Carolina it is shuttering.

Gross fixed investment in Mexico rose 10.3 percent in April and May, the latest government report shows, up from an increase of 4.1 percent for the same two months in 2004. Household private consumption increased 5.4 percent in the first quarter of 2005, up from 3.7 percent in the first quarter of 2004 and 3.6 percent in the same period of 2003. The government hasn't released second-quarter consumption figures yet.

The pace of economic growth, while quickening, remains down from last year's 4.4 percent, which was the fastest annual growth since President Vicente Fox took office in December 2000.

Automobile Industry

Growth has slowed this year in part because a slump in the U.S. automobile industry has curbed demand for cars and auto parts made in Mexico, Alejandro Werner, chief economist for the Finance Ministry, said at an Aug. 1 news conference in Mexico City.

Mexican auto production will strengthen in the second half of the year, bolstering the expansion, as automakers such as General Motors Corp. ramp up output after plant expansions in the country, Werner said. Auto output accounts for 15 percent of manufacturing and 10 percent of total industrial production, Werner said.

The Finance Ministry forecasts the Mexican economy, Latin America's biggest, will expand 3.8 percent this year. Leme predicts the economy will expand as much as 3.7 percent this year. Those forecasts may put Mexican growth ahead of growth in Brazil, Latin America's second-biggest economy. The government there forecasts an expansion this year of 3.4 percent.

Oil

A surge in international oil prices also helped bolster second quarter growth in Mexico, the world's fifth-largest crude producer, Werner said. City and state governments, which receive a portion of federal revenue from oil sales taxes, have boosted spending on public works. Crude oil prices have jumped 42 percent over the past year and reached a record high of $67.10 a barrel on Aug. 12 in New York.

The city of Cuauhtemoc in the state of Chihuahua, for example, hired Minnesota-based Lemna Corporation to build a $13 million waste-water treatment facility.

``We had been looking to promote our technologies in Mexico for a number of years,'' said Poldi Gerard, vice president of Lemna's international operations. ``One of the water utilities just stepped up to the plate and said let's go.''

Check the following discussion for information on Brunswick closing in the United States.

https://www.alipac.us/ftopict-5129-brunswick.html