01/23/2013 12:20 EST | Updated 03/24/2013 05:12 EDT

How Mexico's Economy Survived the Slump

A fan of Mexico's soccer team with his face painted the colors of his nation's flag celebrates his team's 2-1 victory over Brazil and winning of the gold medal for men's soccer at the London 2012 Summer Olympics, in Mexico City, Saturday, Aug. 11, 2012. (AP Photo/Marco Ugarte)

Few economies escaped the global slowdown in the summer of 2012. Mexico was a rare and notable exception. While marked deterioration in China, India and Brazil grabbed the headlines, Mexico quietly hummed along, generating remarkably smooth growth. For an economy so tied to US fortunes, that is quite an achievement. What is the secret of Mexico's success?

GDP statistics tell the tale. India's growth plunged from 8 per cent in mid-2011 to just under three per cent last summer. Brazil's long slide saw year-to-year increases tumble from 8 per cent in mid-2010 to less than half of one per cent in the second quarter of 2012. China's slowdown was less dramatic, sliding from nine per cent at the end of 2011 to 7.4 per cent by mid-2012 -- but given that China's economy experiences serious dislocation at around six per cent growth, its dip was too close for comfort. Thankfully, the worst seems to be over, and these economies are now on the mend.

At the same time, Mexico steadily generated quarterly growth in the 3.5-to-5 per cent range, with no discernable down-trend. True, the latest GDP figure is the weakest showing since the recession in 2009, but over the course of a year, growth fell by a mere one per cent, to a still-healthy 3.3 per cent. Among major emerging markets, only Russia showed similar resilience -- but in terms of net steadiness, Mexico still comes out on top. How do the numbers add up?

Delving into Mexico's national accounts is revealing. Consumers were surprisingly resilient in the post-recession period, but they are currently less enthusiastic; growth recently receded from the steady four per cent pace to just 2.2 per cent in the third quarter of 2012.

Private investment saw an even steeper decline. From an impressive 8-10 per cent pace, private construction registered a stunning 20 per cent year-on-year gain at the end of 2011 -- only to see growth completely vanish by the summer of 2012. Similarly, private sector machinery and equipment investment -- accustomed to hefty double-digit increases -- sunk to a year-on-year gain just shy of 4 per cent early last fall.

So far, the Mexican economy doesn't seem much different from the rest of the world. What is keeping its overall numbers afloat? Throughout 2012, the growing private investment void was filled in by a surge of public investment -- mostly construction projects. On paper it seems too good to be true, but the government's intervention couldn't have been better timed and the amounts could hardly have been better calibrated. In the history of fiscal timing, it's probably one for the record books.

But the story doesn't end there. Notwithstanding the very recent lull, rising private investment speaks to Mexico's ongoing success at attracting large amounts of foreign investment. Production arising from these investments is boosting Mexico's exports, which over the past two years have outpaced import growth, yielding a decent net contribution to the economy. That's something the other large emerging markets were not been able to say until very recently, and highlights the underlying strength of the US economy, the main driver of Mexico's export success.

Will Mexico's enviable record continue? The keen interest of foreign investors in Mexico suggests that the slowdown of private investment is temporary -- good news for the government, which can't afford to offset private investment indefinitely. More importantly, the export potential that justifies foreign investments is strong, thanks to resurgent US housing, consumer and corporate markets.

The bottom line? Mexico's recent growth run is impressive, and is set to continue. Over the coming months, this market will be one to watch.