Mexican industrial activity rebounds strongly, resparking hopes of avoiding dip

Mexican Industrial Production 2013-03-14Enlarge Graph

The Mexican industrial activity for January recovered 1.1% versus December 2012 after having dropped over 2% the previous month.

The industrial production figures are seasonally adjusted, so any calendar effects should have being removed, though it seemed that December last year was much slower than usual. Comparing January 2013 vs January 2012 showed an increase of 1.7%.

The data is positive, considering that the previous month all sectors had posted decreases. Additionally, just last week Banxico (the Mexican Central Bank) cut interest rates from 7.25% to 7.00%, which will lower the cost of debt throughout the economy and hopefully spark growth.

Mexican Industrial Production by Sector 2013-03-14Enlarge Graph

The bounce was driven by construction, which posted a 3.7% to more than make up the 2.7% drop in December. The mining sector remained strong. Mining, which dropped 2.1% in December, was flat versus January, showing signs of improvement. All other segments were marginally higher.

The mining sector was up almost 3% year-over-year. A positive note is that the growth was caused mainly by a 7% year-over-year increase in non-related oil production, which is much less volatile than oil production.

The manufacturing sector posted a sluggish 2% year-over-year growth, which is not great compared to the 12 month growth rates of approximately 7% for the previous two years. Construction was flat for the year, which was actually expected given the strong slowdown in the second half of last year (as of December 2012 the 12 month growth rate was 5% behind the previous year).

Nonetheless, both the consumer and producer confidence indices posted optimistic values for January pointing to a clearly perceived improvement in economic conditions, which match the improvement shown in the month to month advances.

Investors in Mexican equities (e.g. EWW, NAFRAC, MXF) should welcome the news and feel more confident that Mexico may have avoided the feared double dip.

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