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Mexico's economy expands faster

The second-quarter rate is below expectations, but it snaps a streak of four quarters of decelerating growth.

August 17, 2007|Marla Dickerson | Times Staff Writer

MEXICO CITY — Mexico's economy perked up a bit in the second quarter after a slow start to the year. But some analysts warned that the acceleration could be short-lived if the U.S. economy stalls.

Mexico's gross domestic product expanded at a 2.8% annual clip compared with the April-to-June period in 2006, the government reported Thursday. That was an improvement over the 2.6% rate in the first quarter, snapping a string of four quarters of decelerating growth. GDP is the measure of a country's output of goods and services.

Still, the expansion came in below analysts' expectations, and Mexico remains a laggard among its Latin American peers. Some economists see more trouble ahead if sub-prime mortgage pain hobbles the economy of the U.S., the destination for 80% of Mexico's exports.

"If the U.S. situation continues to deteriorate, things will get worse" for Mexico, said Eugenio Aleman, senior economist at Wells Fargo & Co. in Minnesota.

"It's going to be a tough year."

Mexico's bellwether manufacturing sector continues to struggle with weak orders from its northern neighbor. The government reported this month that industrial production was up a tepid 0.8% in the second quarter.

Auto production picked up in the April-to-June period after a dismal first quarter.

But output still trails last year's figures. In the first seven months of the year, Mexico produced 1.1 million vehicles, down 1.4% compared with the same period in 2006, according to the Mexican Automotive Industry Assn. Exports of cars and trucks were flat.

Vehicle production in Mexico is dominated by Ford Motor Co., General Motors Corp. and DaimlerChrysler, which export most of their Mexican-produced cars and trucks to U.S. showrooms.

Analysts say the Big Three's shrinking market share in the U.S. is crimping one of Mexico's most important industries.

But the immediate worry is the widening fallout from the crash of the sub-prime lending market in the United States. Mexican stocks, bonds and the peso fell sharply Thursday as fears of a global credit crunch spread around the globe.

Mexico's IPC stock index tumbled as much as 6% on Thursday before closing down 1.24% at 27,793.16 points.

Meanwhile, the peso sank to its lowest level against the greenback in more than a year, ending the day at 11.239 to the U.S. dollar.

Fear of inflation is also stalking the Mexican economy. Consumer prices posted their biggest increase in six months in July as annual inflation rose to 4.1%.

Analysts say that could compel Mexico's central bank to raise interest rates, which would serve as another drag on the nation's economic growth.

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marla.dickerson@latimes.com

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