Mexico manufacturing: chugging along

There are few better ways to start the new year than posting strong results. So imagine the delight of Mexico’s new administration when a manufacturing index on Wednesday showed the best monthly result since records began in April 2011.

The so-called Purchasing Manufacturers’ Index (PMI), a survey among businesses of things like new orders, production and employment in the sector, rose to an all-time high of 57.1, notably above November’s 55.6 points.

Mexican manufacturers said they received the highest monthly increase in new orders since the index began, in a clear sign of increasing demand. Production also reached its highest point since the index began.

As if to reinforce the good news surrounding Mexico, the country’s stock market index hit an all-time high during morning trading on Wednesday – though brokers said that the increase was mainly the result of Tuesday’s “fiscal cliff” deal in the US.

The latest results from Mexico’s PMI suggest that increasing competitiveness in the manufacturing sector is for now, at least, compensating for the ongoing complicated global environment.

Economic growth is expected to have reached close to 4 per cent last year, a strong figure given the sluggish average annual growth Mexico produced in the first 10 years of this century.

But even with those results, Mexico’s ability to continue growing strongly will depend in large part on passing so-called structural reforms to make its economy more efficient and competitive. The list is long but it includes a tax reform to increase the government’s pitifully low tax take and an energy reform to boost production by providing the private sector with a bigger role to play in the highly protected oil and gas sector.

Centrist President Enrique Peña Nieto, who began his six-year term in December, has got off to a positive start. In the days leading up to his swearing-in ceremony, congress passed a sweeping reform of the country’s antiquated labour laws. Just before Christmas, it passed another important reform – this time to shake up the education sector.

But most analysts agree that the hard work is to come. Both tax and energy have proved politically divisive issues in Mexico, and Peña Nieto’s attempts to overhaul these areas – he has said that he plans to tackle energy in the next six months, and the tax issue after that – will doubtless meet with some legislative resistance.

Even so, he has got off to a good start. And, as Wednesday’s manufacturing index shows, he has the benefit of a strong tailwind.

Source: Financial Times

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