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Mexico Business Forecast Report Q4 2008

Published by: Business Monitor International

Published: Jul. 28, 2008 - 52 Pages


Table of Contents


Executive Summary
A Question Of Resilience
Chapter 1: Political Outlook
SWOT Analysis 7
BMI Political Risk Ratings
Domestic Politics
Energy Reforms Under Threat
We believe the next six months will prove crucial for Mexican President Felipe Calderón, who is currently facing
major challenges on two fronts.
TABLE: MEXICO POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Effects of US Downturn Too Early To Call
Our 2.9% real GDP growth forecast for the Mexican economy in 2008 was put at risk with the announcement of
disappointing Q108 y-o-y growth of 2.6%, 40bps below government estimates of 3.0%.
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Current Account On Solid Ground
The increased resilience of Mexico’s economy from the US economy is positive news for its long-term balance of trade.
TABLE: BALANCE OF PAYMENTS
Monetary Policy
Inflation, Growth Concerns Put Banxico In A Tight Spot
The spike in both headline and core inflation in June, to 5.26% and 5.01% y-o-y respectively, is contrasted by
growing concerns of a weakening economy.
TABLE: MONETARY POLICY
Banking Sector
Credit Boom Poses Limited Risks
The Mexican banking sector has come a long way from the peso crisis of the early 1990s, largely thanks to the
political and economic stability since 2000.
Chapter 3: 10-Year Forecast
The Mexican Economy To 2017
2008-17: Solid Growth Prospects
Armed with an increasingly wealthy consumer and robust levels of fixed investment, the Mexican economy should
continue to motor along nicely over the period 2008-17, averaging real expansion of 3.6% per annum.
Table: MEXICO 10-year Macroeconomic Forecasts
Chapter 4: Special Report
Mega-Urban Regions
TABLE: THE WORLD’S 30 LARGEST URBAN AGGLOMERATIONS
TABLE: THE WORLD’S RICHEST CITIES IN 2020 BY GDP
TABLE: THE WORLD’S FASTEST GROWING URBAN AREAS BY POPULATION
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
TABLE: LATIN AMERICA , ANNUAL FDI TABLES
Market Orientation
TABLE: BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Key Sectors
Freight Transport
Industry View
Our overall forecast is now that freight carried across all modes, measured in million-tonnes kilometres, will
grow by an annual average of 4.9% through the 2008-2012 forecast period.
TABLE: FREIGHT CARRIED, DOMESTIC AND INTERNATIONAL
Tourism
Industry View
Full-year 2007 tourist arrivals figures released by the Ministry of Tourism (Sectur) were disappointing. Total
tourism arrivals for the year totalled 21.4 million, practically flat compared with the 21.35 million arrivals
measured in 2006.
TABLE: MEXICO TOURISM INDUSTRY - HISTORICAL DATA AND FORECASTS
TABLE: MEXICO TRAVEL INDUSTRY - HISTORICAL DATA AND FORECASTS

Abstract

A Question Of Resilience

The key questions asked in this quarter’s Business Forecast Report concern the resilience andsturdiness of the Mexican economy in the face of a US economic deceleration. Few would questionthe inescapable geographical, financial and economic linkage between the two countries. Forinstance, over 80% of Mexico’s exported goods are still destined for north of the border. However,Mexico appears to be exhibiting a level of economic autonomy unseen in previous downturns inboth countries’ business cycles. One good example of policy divergence is the hawkish stancetaken by central bank, Banxico, at a time when the US Federal Reserve is unlikely to bump up itsown funds rate. How far Mexican economic growth is dragged down remains to be seen. However,we remain relatively confident for now that Mexico will suffer only a temporary dip in growth, andwill recover quickly over the next couple of years to .9% by 011.

President Felipe Calderón is facing crucial battles with regards to both economic and securitypolicy in the second year of his sexenio. There is much uncertainty as to whether his governmentcan iron out an energy reform deal that satisfies the hardline, nationalist factions within the oppositionPartido Revolucionario Institucional, whose support is required for congressional approval.Meanwhile, the death toll in the war against organised crime is mounting, with several leadingmembers of his security force assassinated this year. Escalating violence could threaten to againdamage the president’s popularity with Mexico’s rural population, especially at a time when livingcosts are rising.

Mexico’s manufacturing sector is starting to feel the pinch of a slowdown in the US economy. Thecountry’s industrial manufacturing output is highly correlated with production north of the border- unsurprising, given the importance of the maquila export sector in Mexico. Mexico’s industrieshave been relatively well sheltered from a consumer-led US slowdown so far. However, shouldthe US dollar start to strengthen in the second half of 008 (a scenario that would hurt the competitivenessof US exporters), demand for Mexican goods could start to wobble, impinging on localindustrial output.

The government’s ambitious infrastructure development plan is yet further evidence to supportthe heightened reform drive and improving business environment fostered under the Calderónpresidency. The stimulus to local companies and the investment climate could help boost Mexico’soverall score in our Business Environment Ratings (currently at .8) over the medium term.There are significant shortcomings, however, largely focused within the ‘institutions’ category. Forinstance, the process of opening and closing businesses in Mexico remains time consuming andbogged down in red tape.

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