Country Report Mexico January 2009

Outlook for 2009-10

• Despite a host of countercyclical measures, the impact on Mexico's economy of the severe downturn will be harsh, benefiting the opposition PRI in the July mid-term election.
• A growing recognition that Mexico will be severely hit by the US recession has prompted the government to ratchet up anti-crisis programmes designed to boost the economy and mitigate deteriorating labour market conditions.
• Although inflation has continued to rise, Banxico is likely to continue to cut interest rates, on the assumption that the sharp decline in domestic demand anticipated during 2009 will produce disinflation.
• Our forecast assumes that countercyclical measures will limit the length and severity of the recession. We project a 1.4% contraction of GDP growth in 2009. A gradual recovery in 2010 is forecast, with GDP growth picking up to 1.4%.
• Inflation will fall to 3.6% in 2009 before stabilising at that level in 2010. We project a year-end exchange rate of Ps14.4:US$1 in 2009 and Ps14.1:US$1 at end-2010.
• The current-account deficit is forecast to widen to an average 2.2% of GDP in 2009-10, from an estimated 1.9% of GDP in 2008.

Monthly review

• The discovery of the heads of a murdered former police chief and seven soldiers in Guerrero state has reinforced scepticism about the government's claims that it is making headway in the war against organised crime.
• The US has authorised the release of US$197m in funding from the US$400m approved in June 2008 under the Merida Initiative.
• The government has ratcheted up its countercyclical programme. New measures, including policies to minimise job losses, a reduction in energy and petrol prices and incentives for durable goods spending and housing credits.
• In spite of rising inflation, Banxico cut interest rates by 50 basis points, in an attempt to stimulate domestic demand.
• Contracting retail and vehicle sales, waning consumer confidence and rising unemployment have pointed towards a sharp weakening of economic activity in the fourth quarter of 2008.
• Trade flows are slowing abruptly, but with export earnings falling more rapidly, the trade deficit has widened. The US$2.8bn deficit posted in November was the largest on record.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52