MEXICO CITY, Oct 18 (Reuters) - A further decline in Europe’s economic growth could hurt Mexico by causing a reduction in exports to Europe and curbing investment in Mexico, central bank board member Manuel Sanchez said on Thursday.
Sanchez, in the text of a speech delivered to a central bank conference in Poland, also said some Mexican banks could face fallout from events affecting their European parents, although the sector in general was in a sound position.
“Further deceleration of EU growth could hurt Mexicos economic prospects, indirectly if the U.S. economy slows as a result, but also directly through less dynamic exports of goods and services to Europe, especially in vehicle shipments which are the most important export item, and lower European investment, likely in manufacturing and financial services, which have been the leading recipient sectors,” he said.
“Regarding the latter sector, the Mexican banks have healthy balance sheets and are well capitalized, but some subsidiaries of European banks could nevertheless be impinged by events affecting their parents.”
Big European banks active in Mexico include Spain’s Santander and BBVA and the UK’s Royal Bank of Scotland and HSBC.
Santander recently listed 25 percent of the shares of its Mexican unit in the biggest-ever share issue for Mexico, Latin America’s number two economy.
Sanchez said that over the last 10 years, the EU had been Mexico’s second most important investment partner, contributing almost one-fifth of total accumulated foreign direct investment.
The European Union is Mexico’s third-largest trading partner after the United States and China, but makes up just 8 percent of trade. Almost 80 percent of Mexican exports go to the United States.
Mexico’s economy grew an average 4.3 percent in annual terms in the first half of the year, but growth is expected to slow in the second half, with the Finance Ministry predicting an expansion of 3.5 to 4 percent for 2012.
The central bank is seen leaving interest rates on hold at 4.5 percent through 2013.