Country Report Mexico May 2009

Summary

A sharp deterioration of the economy is set to result in a poor performance by the government at mid-term elections in July, weakening Mr Calderon's mandate in the second half of his six-year term.
The government is capitalising on low public indebtedness to ratchet up anti-crisis programmes, but credit conditions for small and medium-sized firms look set to remain strained.
The government will increase debt to maintain the fiscal stimulus in spite of signs of sharp falls in revenue. The NFPS deficit will widen to 5.3% of GDP, from near-balance in 2008.
We expect the economy to contract by 4.4% in 2009. Recovery in 2010 (growth of 1.2%) will be limited by still weak external factors, slowing the recovery of employment and investment.
Despite a small recovery in recent weeks, falling export revenue and heightened risk aversion will weaken the peso further, to Ps15.2:US$1 at end-2009 and Ps16.0:US$1 at end-2010, a real depreciation of over one-fifth.
With the decline in export earnings set to outweigh even sharp import spending compression, and dollar GDP set to fall steeply this year, the current-account deficit will rise from 1.5% of GDP in 2008 to 3.1% in 2009 and 3.8% in 2010.

In a state visit in April Mr Obama pledged firmer support for Mexicos efforts to tackle drug-related crime and reduce trafficking across the border.
Some differencesmainly over US gun legislationwere brought into focus by Mr Obamas visit. Mexico is pressing the US to reinstate a ban on assault weapons, although the US gun lobby's influence threatens to prevent this.
Mexico has secured a US$47bn credit line from the IMF. Combined with the announcement that it was tapping a swap facility at the US Federal Reserve, this contributed to a reversal of the sharp depreciation of the peso.
The NFPS posted a deficit of Ps8.1bn (US$571m) in January-February, a significant deterioration from a year earlier. Yet when factoring in revenue from the oil hedge deal, the results are in line with budget estimates.
The central bank announced a second consecutive cut of 75 basis points in the reference interest rate in April. More aggressive monetary easing reflects growing concerns about the recession.
Monthly economic indicators have continued to paint a gloomy picture, with industrial production contracting by 13% in February and trade flows falling by around 30%.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;53;59
NAICS Code: 52;44