Mexico’s manufacturing sector continued to expand in February, but at a much lower level, according to the PMI survey.
The bright side is that the economy continues to grow, though at a slower pace. Given the global headwinds due to uncertainty in both the U.S. and Europe, it is remarkable that the Mexican manufacturing sector economy remains in positive growth territory, as evidenced by the value above 50 in the PMI survey.1
However, negative trends are starting to pile up. The producer price component of the PMI pointed to increased inflation. The input price inflation is in fact at an eight month high, which may lead to margin squeezes as costs go up. Additionally both output and new order growth have slowed down, implying a sure reduction in output in coming months.
The few bright spots are that new exports are accelerating, a benefit resulting from improved economic conditions in the U.S., Mexico’s main trading partner. Additionally, employment did accelerate marginally, which implies caution by managers but expansion nonetheless.
Overall the results were a mixed picture of modest acceleration of some components along with more significant slow down of other components. As a side note, the threat of contagion in Europe from the bank run in Cyprus could threaten to kill any sparks of growth left.
Investors in Mexican equities or Latam focused ETFs should be cautious in the short term, perhaps even bearish given the global uncertainty. In the medium to longer term, emerging markets in general should benefit from a recovery in developed economies.
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