Nearshore Americas

Mexico’s Economy Records Slow Growth Amidst Oil Slump

Mexico’s economy grew 0.7% in the fourth quarter of 2014, although oil prices slipped to record lows, hitting the country’s manufacturing industry hard.

What helped the economy was an increase in exports to the United States. Many U.S. auto firms have shifted their manufacturing units to Mexico while President Enrique Pena Nieto has set about reforming the economy.

According to the Mexican Automobile Industry Association, auto production rose 27% in December from the previous year after Honda and Mazda opened new factories.

For Mexico, the sudden drop in global crude prices came just as it was opening up its oil fields for foreign investors. Reports say the slump in crude has forced the government to cut infrastructure projects and other spending by an amount equivalent to 0.7% of gross domestic product.

Like other Latin American countries, Mexico is heavily reliant on commodities. About one-third of government spending is funded by oil revenue. According to Bloomberg, mining output, which includes oil extraction, dropped 5.7% in the fourth quarter, the biggest decline among all major GDP components.

As oil prices fell, the country’s central bank cut the growth forecast for 2015 to between 2.5% and 3.5%.

Thanks to a series of reforms, Mexico is in a stronger position today than it was two years ago. Falling inflation has bolstered domestic consumption, while the job market is growing steadily.

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Growth in the United States is also benefiting the economy, as Mexico’s northern neighbor accounts for more than 80% of its exports. Analysts say Mexico’s central bank might increase bank lending rates sometime in the middle of this year.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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