Mexico Infrastructure Report Q4 2009

This quarter we have only slightly revised our infrastructure sector forecasts for Mexico. In light of slightly better than expected data, we now expect the country's infrastructure sector to contract by 5.1% in real terms during 2009, compared with our earlier expectation of 6.1%. We continue to expect growth of close to zero in subsequent years; indeed, we predict it will take until 2014 for annual real sector growth to move above 1%.

It should be noted that in the event of the National Infrastructure Plan (NIP) taking off, the risks to our forecasts could be to the upside. The NIP is a wide government initiative that plans public and private annual investment of MXN420bn (US$38.44bn) for the period 2007-2012. However, the NIP is dependent on significant private finance at a time when the willingness of potential investors to provide funds remains extremely limited. Moreover, the government is facing significant difficulties with its own efforts to raise borrowing. The government has already had to curtail some of its plans for investment in roads.

Aside from the upside risks sketched above, there are also downside risks to our forecasts, particularly for 2010. Much depends upon how prolonged the global economic downturn is: at the moment, our core scenario envisages a recovery in the global economy during 2010, but this scenario is by no means guaranteed.

There were a number of significant developments in the power sector over the last quarter. A consortium managed by Spanish utility company Iberdrola secured a US$160mn deal to extend and modernise power lines in the states of Veracruz and Chiapas, Iberdrola and Mexican group Energias Ambientales de Oaxaca secured a US$176.6mn deal for the construction of the 101MW Oaxaca 1 wind farm, and France's Alstom won a EUR45mn (US$61mn) deal to supply the 25MW Los Humeros II geothermal power plant, including key equipment.