Strong U.S. recovery fosters growth in Canada and Mexico

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The US economy is so strong that its neighbors, too, are getting a boost.

Businesses and consumers are buying more products from Canada and Mexico, and Americans with a lot of savings are starting to travel and send more money across the southern border again, helping to strengthen two countries whose economies have shrunk. been hit hard by Covid-19 infections and blockages.

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Central bank officials have raised their forecast for economic growth this year to 6% for Mexico and 6.5% in Canada, in part because of the strong US rebound. The $ 1.9 trillion U.S. stimulus package promulgated in March is expected to increase output in each country by half a percentage point to a full percentage point over a 12-month period, according to the Organization for Cooperation and Development. economic development.

Much of the increase is due to strong demand for everything from Canadian lobster to Mexican-made cars, which is generated as the U.S. economy reopens and consumers spend more of the money than they do. ‘they have accumulated during the pandemic. U.S. imports from Mexico and Canada increased by 30% and 29% respectively in the first five months of this year compared to the same period in 2020, and were around 3% and 5% above their 2019 levels, according to the U.S. Census. Office.

The United States has “a lot of fiscal stimulus going on and more infrastructure spending in the pipeline,” Bank of Canada Deputy Governor Timothy Lane said at a news conference in the month. latest. “All of this will generally be good for Canada. “

Citing the progress of the economic recovery, Canada’s central bank in April cut its bond buying program to C $ 3 billion, the equivalent of $ 2.4 billion in purchases each week compared to at the previous level of C $ 4 billion. The Bank of Canada has also advanced its assessment of when it could start raising interest rates again, in the second half of 2022, after earlier saying it could happen in 2023.

President Biden’s $ 1.9 trillion stimulus package is expected to boost output in Canada and Mexico each by one percentage point over a 12-month period.


Photo:

Shawn Thew / Bloomberg News

The Bank of Mexico raised its policy rate by a quarter of a percentage point to 4.25% on June 24 to counter rising inflation resulting in part from price pressures associated with chain bottlenecks supply.

Mexico’s export manufacturing industry, the main driver of its export growth, is seeing a rebound in non-core activities, said Manuel Barragán, manager of the Smiths Interconnect plant in Tijuana, across the country. the San Diego border. The company manufactures electronic components for the medical and aerospace industries. “With the pandemic, the medical side is something that hasn’t stopped,” he said. “But what we’re seeing now, across the export manufacturing industry, is a pickup of what’s called non-essential.”

In April, manufacturing employment in Mexico had returned to pre-pandemic levels.

Mr Barragán said demand would likely increase further as vaccinations progress along the border and restrictions on non-essential travel are lifted. “When more Mexicans enter the United States, that’s when there is more consumption of products from Mexico,” Barragán said, referring to cross-border shopping. “The next six months will be good for the entire export manufacturing industry. “

Some multinational companies have announced new investments in Mexico. Food and consumer company Unilever PLC plans to invest around $ 275 million over the next three years to increase the capacity of its four production plants in Mexico, which it says should boost exports from approximately $ 1 billion during this period. “This will allow us, by developing our brands, to fuel exports, which are an engine of growth,” said Reginaldo Ecclissato, president of Unilever for Mexico and northern Latin America.

In eastern Canada, lobster processors are among those reaping the rewards of the reopening of the U.S. economy, with frozen lobster meat and tails reaching some of their highest prices on record, Nat said. Richard, executive director of the Lobster Processors Association. Richard, whose association represents about 20 lobster processors in Canada’s Maritime provinces, said its members generate very little inventory as they struggle to meet demand.

Boats loaded with lobster pots leave the port of Nova Scotia, Canada, where lobster processors are struggling to keep up with demand.


Photo:

Andrew Vaughan / The Canadian Press / AP

“Our traditional foodservice customers are back with a vengeance, and that is in large part due to the success of the vaccination and reopening efforts in the United States,” said Richard. He said sales to chain grocery stores, which increased during shutdowns last year, also remained strong.

About two-thirds of the lobster processed by association members is exported to the United States in a typical year, and Mr. Richard said that proportion could increase this year as buyers in the United States seem more willing to pay the high prices this season than customers. in Europe and Asia.

Rising crude oil prices, driven by the US and global recovery, are also helping the Canadian economy.

In Alberta, where most of Canada’s crude oil production is concentrated, there is growing optimism that higher prices will lead to more capital investment, said Jeffrey Sundquist, chief of the chamber. trading center of Edmonton, the capital of the Western Province.

Vendors offer their wares to tourists in Cabo San Lucas, Mexico, in April. Travel to Mexico is accelerating.


Photo:

daniel slim / Agence France-Presse / Getty Images

Dwayne Sample, CEO of Argus Machine Co. in Edmonton, which makes equipment used in oil and gas drilling, said his company has rehired about 35 of the 60 employees it laid off during the pandemic as sales began to resume this year. However, he said many producers are still not buying drilling equipment because they are instead focusing on paying off high debt levels or extracting oil from wells they have already drilled.

“We are doing fine,” Mr. Sample said. “But we always hit that breakeven point rather than being profitable month to month.”

The Bank of Canada has warned that the strength of the Canadian dollar, supported in part by rising commodity prices, could potentially create a hurdle for some manufacturing exporters. Supply chain issues, such as a shortage of semiconductors needed for automotive manufacturing, are also holding back the Canadian and Mexican auto industries.

Although the Canadian border remains closed to most non-residents, travel to Mexico is resuming, providing another source of growth for the Mexican economy. From January to April, 2.3 million American tourists traveled to Mexico, almost as many as in the first four months of 2020, with the resorts of Cancun and Los Cabos being the most popular destinations. They represented 76% of the total foreign visitors arriving by air.

Mexican remittances rose 22% in the first five months of the year and could rise further as the United States reopens closed or restricted activities in 2020 as many migrant workers are employed in services such as hotels and restaurants.

How the reopening will affect you

Write to Kim Mackrael at [email protected] and Anthony Harrup at [email protected]

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