Country Report Mexico December 2008

Outlook for 2009-10

• Despite a host of countercyclical measures, the impact on Mexico's economy of the severe downturn in the developed world has already scuppered FelipeCalderon's pledge to deliver an "employment" presidency.
• Near-term momentum on his administration's legislative agenda will slow as the political focus shifts to the mid-term congressional election of July 2009.
• A low public debt will enable the government to accommodate a widening of the public sector borrowing requirement in 2009-10, as part of fiscal stimulus efforts to cushion the economy from a recession in the US.
• A slowdown in economic activity under way since mid-2008 will intensify in 2009, resulting in a 0.2% contraction of GDP growth. A gradual recovery in 2010 is forecast, with GDP growth picking up to 1.8%.
• We maintain our projections for year-end inflation of 7.1% in 2008 and 5% in 2009, declining to 3.6% in 2010. We project a year-end exchange rate of Ps13:US$1 in 2008, Ps13.8:US$1 in 2009 and Ps13.6:US$1 at end-2010.
• The current-account deficit is forecast to widen to an average 2% of GDP in 2009-10, from 1.7% of GDP in 2008.

Monthly review

• The death on November 4th of the interior minister, Juan Camilo Mourino, shocked the country and left a hole in Mr Calderon's team.
• The president has named Fernando Gomez Mont, a high-profile lawyer, as the new interior minister. The move marked the final break-up of the circle of close allies that had held senior posts at the beginning of the administration.
• Following months of turmoil, the Electoral Court has declared that JesusOrtega had obtained the majority of votes in the March leadership election of the Partido de la Revolucion Democratica (PRD).
• The government has announced a hedging strategy to cover roughly the estimated net export volume in the 2009 budget. The target price was set at US$70/b and the cost of the put options was US$1.5bn.
• While many major economies have been cutting interest rates in an attempt to stimulate domestic demand, the Mexican authorities have kept rates on hold amid still-rising inflation.
• Borrowing costs have risen and there has been weak demand for medium-term debt instruments. There has been speculation that this could cause investment plans to be delayed as firms face mounting liquidity constraints.

Source: Country Report

This report covers the following industry codes:
SIC Code: 47;15;70
NAICS Code: 48;23;72;11