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Mexico Country Risk Reports Q2 2015

Mexico Country Risk Reports Q2 2015

Core Views

We remain optimistic toward Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics.

The passage of energy sector reform will bolster sentiment towards Mexican assets and contribute to stronger real GDP growth in the coming years.

The 2015 mid-term elections will be key for the main centre-right opposition party, the Partido Acción Nacional, to position itself to return to the presidency in the next general elections in 2018.

Major Forecast Changes

We have revised down our 2014 real GDP growth estimate from 2.6.% to 2.1%, and our 2015 forecast from 3.7% to 3.5%, due to weak private consumption growth in H115.

We have revised our average exchange rate forecast for 2015, from MXN12.75/USD to MXN13.75/USD, following a sharp sell-off in the unit as a result in the drop in oil prices.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Ruling PRI To Lose Support In Midterms Due To Iguala Crisis
Mexican President Enrique Peña Nieto's approval rating will continue to fall in the coming months, as the disappea rance of 43 students
in Iguala heightens concerns over security and corruption.
TABLE: Political Overview
Long-Term Political Outlook
Strengthening, But Challenges Remain
The next decade looks set to be challenging for Mexico owing to a weak security situation, high levels of income inequality and endemic
corruption.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Growth To Accelerate In 2015
Economic growth in Mexico will accelerate in 2015, driven by stronger private consumption, an uptick in fixed investment, and robust US
demand for the country's manufactured goods exports.
TABLE: GDP By Expenditure
Balance Of Payments
Current Account Deficit To Narrow In 2015
Mexico's current account deficit will narrow in 2015, driven by robust growth in manufactured goods exports to the US. Moreover, the
country's first international oil licensing round, which will commence in H115, will attract significant foreign investment, keeping the
financial account surplus sizeable.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Greater Tax Revenue To Narrow Budget Deficit
Mexico's nominal fiscal deficit as a percent of GDP will slightly narrow in 2015. Rising tax revenue will serve to offset decreasing intake
from state-owned oil company Petróleos Mexicanos in the wake of energy sector liberalisation.
TABLE: Fiscal Policy
Exchange Rate Forecast
MXN: Weaker Average Exchange Rate In 2015
The Mexican peso will average weaker in 2015 than in 2014, driven mainly by a bull run in the US dollar. However, following a
sharp sell-off in Q414, investment inflows into the newly-liberalised energy sector, combined with strong US demand for Mexican
manufactured goods, will result in moderate appreciation of the peso in spot terms in the coming months.
TABLE: BMI Curency Forecast
TABLE: Exchange Rate
Monetary Policy
Banxico Rate Hikes To Follow Fed Tightening In H215
The Banco de México (Banxico) will commence a rate hiking cycle in H215, as the economic recovery that began last year
solidifies.
TABLE: Monetary Policy
Key Sector Outlook
Latin America Autos: Key Themes For 2015
2015 will see a growing divergence amongst Latin America's major vehicle producers. We highlight three major themes that will shape
the regional market over 2015: 1) Production divergence amongst major producers, 2) regional currency depreciations, and 3) falling oil
prices.
Chapter 3: 10-Year Forecast
The Mexican Economy To 2024
Stronger Growth Ahead Following The Passage Of Key Reforms
Mexico's booming manufacturing sector, increasingly strong private consumer and favourable demographics suggest that the country
is well placed to see solid economic expansion in coming years, such that we forecast robust 4.1 % average real GDP growth over the
coming decade.
TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: Operational Risk
Availability Of Labour
TABLE: Latin America – Availability Of Labour Risk
TABLE: Lab our Force Empl oyment By Sector ('000)
TABLE: Top 10 Source Countries For Migrant Workers ('000)
Crime Risk
TABLE: Latin America – Crime Risks
TABLE: Crime Statistics
Chapter 5: Key Sectors
Autos
TABLE: Aut os Total Mar ket – Hist orical Data And Forecasts
Food & Drink
TABLE: Food Consumpti on Indicators – Hist orical Data & Forecasts
TABLE: Hot Drin k Value /Volume Sales , Producti on & Trade – Hist orical Data & Forecasts
TABLE: Mas Grocer y Retail Sales By Format – Hist orical Data & Forecasts
Other Key Sectors
TABLE: Oil and Gas Sector Key Indicators
TABLE: Pharma Sector Key Indicators
TABLE: Infrastructure Sector Key Indicators
TABLE: Telecoms Sector Key Indicators
TABLE: Defence and Security Sector Key Indicators
TABLE: Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Assumptions
Table : Devel oped States , Real GDP Growt H, %
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table : Emerging Mar kets , Real GDP Growth , %

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