Country Report Mexico December 2012

Country Report Mexico December 2012

Outlook for 2013-17

• Enrique Peña Nieto of the PRI was sworn in as president on December 1st; progress on structural reforms will be constrained by the need to gain support from the opposition as well as the PRI's links to entrenched interest groups.
• Despite its strong legislative position, the PRI will require the support of the Panal to get a majority, and that of the PAN for constitutional reforms. Common ground with the PAN bodes well for energy reform.
• Following estimated growth of 4% in 2012 (revised up from 3.9%), we expect GDP to remain broadly stable at around 3.7% throughout the forecast period.
• Policymakers will continue to run a fiscal deficit, averaging 0.7% in 2013-17. The incoming PRI government will be less hawkish than its predecessor, given the need for additional public spending to finance its policy proposals.
• As a result of a still uncertain global outlook, we assume that the central bank will hold rates at 4.5% until end-2013 and will maintain a dovish stance, despite a recent spike in inflation already starting to subside.
• The peso will remain weak relative to other emerging-market currencies, boosting export competitiveness. An ample stock of international reserves will help to smooth out potential volatility.
• The current-account deficit will widen to 1.8% (revised down from 2.6%) in 2017 as import demand grows. The likely opening of the energy sector to private investment will lead to a rise in FDI after weak inflows in 2009-12.

Review

• Mr Peña Nieto was inaugurated as president on December 1st amid a backdrop of rioting by anti-PRI protesters in Mexico City.
• After two months of fiery debate, Mexico's Congress approved a controversial labour reform on November 13th, the first set of meaningful changes to labour market laws in the past four decades.
• On November 14th Mr Peña Nieto presented to Congress a bill to create a Comisión Nacional Anti-Corrupción (CNA, Anti-Corruption Commission), but criticisms have arisen over its independence and effectiveness.
• Following the publication of the first Módulo de Bienestar Autorreportado (BIARE, a survey on subjective wellbeing), Mexico has joined a select group of countries to develop metrics for assessing levels of subjective wellbeing.
• Real GDP grew by 3.3% year on year in the third quarter of 2012 (0.45% quarter on quarter), the lowest level seen so far in the year.
• Mexico's current-account balance swung into a deficit equivalent to 0.2% of estimated GDP in the third quarter, erasing the surplus of the first half.

Do to the nature of this product there is no table of contents.