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Mexico Business Forecast Report Q1 2010Published by: Business Monitor International Published: Oct. 30, 2009 - 56 Pages Table of Contents
AbstractThis is likely to be a year of caution and concern for Mexico watchers, as subdued growth in theUS and structural obstacles prevent a rapid return of economic activity. Key issues will be whetheror not the Mexican consumer is able to bounce back strongly, and the government rein in its fiscalprofligacy while managing to ensure that previous fiscal reforms start translating into higherrevenue flows. Other issues, which will not die down are the government’s battle with the county’spowerful drug cartels, as well as the structural failings of the key oil and gas sector. In this reportwe take a closer look at all of these issues, and assess their implications for the continuation ofMexico’s growth story.Regarding Mexico’s drug wars, the government’s strategy has taken some interesting turns of late,suggesting an element of pragmatism has crept into President Felipe Calderón’s security strategy.However, while we believe some of the changes are likely to make life harder for the cartels, wehold to our long-held view that the federal government lacks both the resources and reach to puta halt to the flow of drugs through Mexico into the US. In short, while the president appears to bewinning popular support for his strategy, we see little hope of any let up in drug-related killings,and indeed anticipate a deterioration in the levels of violence going forward. With Mexico’s 61st parliament now in session, we also take a closer look at the major issues whichare likely to dominate government’s policy agenda, and the potential support for such policies froman opposition-dominated legislative. As regular readers will know, while we believe Calderón hasa clear understanding of where reform needs to take place, the political reality of a ‘lame duck’president means he has limited room in which to manoeuvre, which in turn means any significantpolicy reform, be it on the fiscal, energy or trade front, is unlikely to take place until 2012 at theearliest. One of the key questions we ask in this report, therefore, is the longer-term implicationsthat a lack of reform will have for Mexico’s economy and financial markets. O ne key outcome of failure to reform structural problems is our subdued growth outlook for thecountry, which has significant repercussions for monetary policy for 2010. As capacity utilisationremains below its historic average, and unemployment levels keep rising, Mexico’s central bankwill be wary of raising rates any time soon. With little threat of a policy rate hike until the latterstages of 2010, we see potential for long-end yields on peso-denominated debt to experiencesome contraction over the medium term. That said, with fiscal concerns and the threat of a creditdowngrade looming large on the near-term horizon, we believe long-term investors will remainwary of Mexican assets until they see clear signs that a domestic recovery is under way, which isunlikely to happen before H210, in our view. Get Full Details About This Report >> |
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