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Country Risk Service Mexico September 2012 Updater

  • Publication Date:September 2012
  • Publisher:EIU
  • Product Type: Report
  • Pages:19

Country Risk Service Mexico September 2012 Updater

OVERVIEW

Enrique Peña Nieto, of the Partido Revolucionario Institucional (PRI), and the winner of the July 1st election, will start his term in December by pushing forward an agenda of structural reform. For the reform agenda to succeed, much will depend on his party's ability to negotiate with the opposition, as the PRI and his allies do not hold the minimum congressional seats to pass legislation. The Economist Intelligence Unit now envisions GDP growth of 3.9% in 2012, owing to solid domestic activity, but downside risks in the short term remain, given that Mexico's economy remains vulnerable to external headwinds, including another potential US mid-year slowdown. In addition, above-target inflation in recent months could erode the dovish stance of the monetary authorities, although we expect the policy rate to be held at 4.5% during 2012. Policymakers will continue to run a mild fiscal deficit without materially impairing creditworthiness in the short term, but the incoming government is likely to be less fiscally hawkish than its predecessor. The peso will remain weak and further currency volatility is likely, as investors remain wary of riskier asset classes such as emerging market currencies, but we do not expect the same extent of weakening as in 2008-09, owing to stronger capital inflows.

Key changes from last month

Political outlook

After an August 19th party conference, the Partido Acción Nacional (PAN) leadership has examined how to remain relevant to voters and be a constructive opposition, after its third-place showing in the July 1st election.

Economic policy outlook

The government's takeover of the 2.5 GHz band has triggered a conflict with a telecommunications firm, MVS, which owns most of the spectrum. The government claims that the spectrum was underutilised.

Economic forecast

GDP expanded by a solid 4.1% year on year in the second quarter of 2012 (4.6% in the first), driven mostly by services and industry. In the same period, the current account registered a surplus of 0.3% of GDP.

Please Note: Due to the Nature of This Report The Toc is Not Available

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