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Maquiladora industry executives have two principal economic concerns over mid-term

Maquiladora industry executives have two principal economic concerns over mid-term

A number of maquiladora industry executives, principal among them, the president of the country’s national maquiladora association (INDEX), Emilio Cadena, have two predominant concerns that link Mexico’s export manufacturing industry to the larger macroeconomy.

A generalized aversion to inflation

One concern voiced by maquiladora industry executives is linked to recent trends evident in the current Mexican Peso – US dollar exchange rate. Although the president of INDEX correctly points out that much of the maquiladora industry is insulated from fluctuations in the exchange rate between the two countries as a result of the fact that most purchases and sales are conducted in US Dollars, he concedes that, despite this state-of-affairs, the current dynamic could result in prejudicially higher inflation rates for the Mexican economy, as a whole. In the years following the signing of the NAFTA, Mexico has demonstrated a fiscal discipline that has kept what had been historically high inflation rates and current accounts deficits in check, which has greatly contributed to the country’s economic progress and appeal to foreign investors.

According to Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), or its National Institute of Statistics and Geography, the annual rate of inflation registered this past June was 2.87%. According to INEGI information, this number represents the second-lowest such figure documented since 1970, as well as marks the second consecutive month in which a rate below 3% has been reported.

US economic growth rates a concern of maquiladora industry executives

Typically deep recessions are followed by strong recoveries. As regards the period post-Great Recession of 2008, this rule of thumb has not been the case. Despite a collectively huge cash infusion from what has been the result of considerably lower recent energy costs, according to Reuters, US consumer confidence dipped in July. Maquiladora industry executives see this drop in consumer confidence as one that has a potential and direct effect on the economic fortunes of the companies at which they are at the helm. Word Bank estimates are that US GDP growth will come in at 2.7% in the current year, 2.8% in 2016 and, in the following year, will drop to 2.4%. Economists, such as those at the Economic Policy Institute are of the opinion that, as a general rule, “real GDP growth between 2.0 percent and 2.5 percent is needed just to keep the labor market treading water.” An amelioration of labor market conditions, logically, is fundamental to boosting the economic conditions that pervade Mexico’s export manufacturing sector. This is due to the fact that, according to Emilio Cadena, the US is the “market that we supply.”

The diversification of customer base mitigates economic impact

Although due to the less than optimal economic growth that has characterized the US market over the last several years, maquiladora industry executives and the companies and industries that they represent and lead, have experienced an approximate 10% growth in exports over the last several years, as well as a related almost six percent increase in their workforce size. In addition to making better, more globally competitive products (this has been particularly true in the Mexican automotive and aerospace industries), a significant portion of this figure may be attributed to the discipline, diligence and intelligence that Mexican economic policymakers have consistently exercised, since the signing of the NAFTA by the US, Mexico and Canada a bit more than two decades ago. From that time onward Mexico has progressively become the country with the largest network of free trade agreements on the planet, and, as a result, has not only made itself highly attractive to foreign direct investors worldwide as one of the globe’s most viable and cost-effective export platforms, but has proactively taken measures to make its exports price competitive in the world’s most demanding consumer and industrial markets. Although still a significant consideration, selling Mexican products to a broader clientele has mitigated its previously stronger ties to the effects of US economic fortunes.

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