Across the border, economy making life pretty good

MEXICO CITY -- A sizzling stock market. A strengthening peso. Good economic growth. Someone forgot to tell Mexico that the U.S. has been flirting with recession.

Mexico's gross domestic product expanded at an annualized rate of 2.6 percent in the first three months of the year compared with the same period a year earlier, according to government figures released Thursday. It's a respectable performance that highlights the nation's surprising resilience in the face of a U.S. slowdown.

"Mexico ... is not immune" to what's happening north of the border, said Gray Newman, chief Latin American economist for Morgan Stanley in New York. But, "it's not suffering the kind of downturn that everyone was expecting with weakness in the U.S."

Mexico is the world's 14th-largest economy, according to the latest statistics available from the World Bank, with a GDP in 2006 of $839.2 billion, which is the value of all goods and services produced in the economy.

Bound to the United States by geography, immigration, trade and investment, Mexico's fortunes have long been linked to those of its northern neighbor.

The U.S. housing industry, for example, which employs one in five Latino immigrants, is in a slump, resulting in a marked slowdown of remittances sent to Mexico. A prolonged U.S. downturn would undoubtedly hit Mexico hard.

Still, the nation's economy is holding up well so far.

One factor is that much of the world economy is growing despite the U.S. slowdown. While Mexico still ships about 80 percent of its exports to the United States, its farmers and manufacturers are looking for new customers in Asia, Europe and the rest of Latin America.

That diversification is paying off. So far this year, Mexican exports to the U.S. have grown more than 16 percent, while shipments to the rest of the world grew at twice that pace. Exports to Europe grew by 56 percent.

The trend can be seen in Volkswagen de Mexico, the Mexican division of the German automaker, which manufactures Beetles and Jettas at a sprawling facility in Puebla. Through the first four months of the year, VW's Mexican exports totaled 123,000 vehicles, up 29 percent from the same period a year ago, according to spokesman Thomas Karig.

The Puebla plant recently began manufacturing a new fuel-efficient station wagon, the Jetta SportWagen, which is proving a hot seller in Europe. The Mexican government's decision to enter into free-trade agreements with a number of nations has made Mexico an attractive place for Volkswagen to build cars, Karig said.

Through the first four months of the year, vehicle exports from Mexico are up 18.5 percent over the same period a year ago, according to figures from the Mexican Automotive Industry Association.

One of the strongest performers has been General Motors, whose exports are up nearly 38 percent over 2007, according to the association.

And although soaring crude-oil prices might be pinching U.S. drivers, they've meant record oil revenue for Mexico, the world's sixth-largest oil producer.

The petroleum windfall is bankrolling a slew of government spending and investment, which is helping to keep the economy rolling. President Felipe Calderón plans to invest about $250 billion in roads, airports and other infrastructure during his six-year term, which ends in 2012.