Mexico Business Forecast Report Q1 2009

Publication Date	October 2008
Publisher	Business Monitor
Product Type	Report
Pages	65
ISBN Number	1744-8891
Product Code	BMI02921

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Summary

How Bad Will It Get?

In this Business Forecast Report we take a closer look at Mexicos economic outlook in light of the turmoil in the global financial markets, continuing decline in global commodity prices, and what now appears to be a severe economic downturn in the US. We also look at how the government of President Felipe Caldern is preparing to deal with what is becoming a bleaker economic outlook for 2009, although we remain relatively confident that economic growth will regain momentum over the next couple of years to 3.9% by 2011.

From a political perspective, we examine how the left-wing opposition Partido de la Revolucin Democrtica (PRD) appears to be declining in popularity, thankslargelyto a resurgent Partido Revolucionario Institucional (PRI). With next Julys mid-term congressional fast approaching, we see a significant restructuring of congress as highly likely, and believe this could have important ramifications for BMIs proprietary short-term political risk ratings for Mexico. With spiralling levels of violence showing no signs of abating in the near future, and the effects of a global credit crunch likely to hit Mexico, we believe security and the economy will be the key issues next July.

In a testimony to congress in September, Mexican Finance Minister Agustn Carstens admitted his concern about the recent performance of workers remittance inflows. He followed by stating that remittance incomes would probably fall by 7-8% in 2008 (equivalent to roughly US$2.5bn) as a direct result of the slowdown in US economic activity. We generally agree with Carstensconcern about the negative impact of slower US growth on remittance flows. Indeed, in the first eight months of the year, remittance flows fell by 4.2% as a result of the poor performance of the US construction sector (the largest employer of Mexican overseas workers), which we see unlikely to improve at least until the latter stages of 2009.

In early October the government announced its revised budget for 2009, which was approved by the PRD as it promised a US$4.4bn boost to public spending. Part of this would be on a new oil refinery, something that the PRDs previous presidential candidate, Andrs Manual Lpez Obrador, proposed in his 2006 election campaign. While such a large increase in public spending, coming on top of an already ambitious infrastructure development plan, should help improve the countrys business environment, we are concerned at the pressure this will place on the fiscal coffers.

Content

Executive Summary
How Bad Will It Get?
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Return Of The PRI
- We believe the centrist Partido Revolucionario Institucional (PRI) is likely to replace the left-wing opposition
- Partido de la Revolucin Democrtica (PRD) as the main congressional opposition to President Felipe Calderns
- Partido Accin Nacional (PAN) after next Julys mid-term congressional elections.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Greater Divergence, But US Remains Important
- A correlation of selected US and Mexican economic data suggests that Mexicos economy has become significantly more insulated from a US economic slowdown in the last five years.
- Monetary Policy
- Banxicos Stance To Become More Dovish
- In line with our view, Banxico held interest rates at 8.25% in September, and we believe that economic concerns now mean Mexicos central bank is likely to adopt a more dovish monetary policy stance going forward.
- Balance of Payments
- Current Account Deficit To Widen
- In line with our expectations, Mexicos current account deficit widened in Q208 to US$2.0bn, primarily thanks to strong import growth.
- Fiscal Policy
- Heading Into Deficit
- Despite Mexicos nominal fiscal balance for H108 coming in more than 150% above government estimates for the period, at MXN85.4bn, BMI has several key concerns regarding the outlook for the governments fiscal situation.
Chapter 3: 10-Year Forecast
- The Mexico Economy To 2018
- 2009-18: Steady Growth After 2009
- Armed with an increasingly wealthy consumer and robust levels of fixed investment, the Mexican economy should continue to motor along nicely over the period 2009-18, averaging real expansion of 3.4% per annum.
Chapter 4: Special Report
- Why The US Can Remain World Superpower
- Wealth Is Shifting East...
- The USs current financial woes will not necessarily undermine its position as a global superpower.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Power
- Telecoms
Chapter 7: BMI Global Assumptions
- Global
- United States
- Eurozone
- Japan
- China
- Commodities
Tables
- Table: Mexico Political Overview
- Table: Economic Activity
- Table: Monetary Policy
- Table: Balance Of Payments
- Table: Fiscal Policy
- Table: Mexico Long-Term Macroeconomic Forecasts
- Table: Geopolitical Power Index
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Latin America Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Table: Global Summary
- Table: Telecoms Sector - Internet - Historical Data & Forecasts
- Table: Global Assumptions