Core Views
Mexico will remain an EM underperformer for the duration of our 10-year forecast period, with our growth projections beyond 2011 significantly below consensus.
Without any significant tax or energy reform on the horizon, the economy will fail to overcome its structural fiscal weakness.
Cartel activity will continue to blight Mexico’s investment outlook for the foreseeable future.
Major Forecast Changes
A solid year-to-date export performance means we have now revised up our end-2011 trade balance forecast from a deficit of US$3.2bn to a moderate US $912mn surplus, followed by a more robust US $985mn surplus in 2012.
Key Risk To Outlook
Should poor economic data out of the US and persistent eurozone woes cool US interest rate expectations further, we may be encouraged
to revise down our 2012 interest rate projection for Mexico, which we currently have pencilled in for 50 basis points of rate
hikes before end-2012.
An upside risk to our real GDP growth forecast comes from US demand for exports. If demand proves more robust than we expect, GDP growth could be closer to 5% than our 4.1% projection for 2011.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risk To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Opposition Boost For 2012
A dramatic victory for the opposition Partido Revolucionario Institucional (PRI) in the July 3 state elections is a strong signal of voter preferences for next year’s general elections
Table: Political Overview8
Long-Term Political Outlook 9
Inertia To Cap Development
The constant struggle to introduce far-reaching social and economic reforms will be the defining characteristic of Mexican politics beyond the 2012 elections
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
No Upward Revision To Growth
At present, Mexican economic activity looks strong, but with the consumer story not yet convincing and high oil prices likely to dampen demand for exports, we are happy to stick to what is now a below-consensus real GDP growth projection of 41% for 2011
Table: ECONOMIC ACTIVITY14
Balance Of Payments 16
No Improvement In External Account
Not only does Mexico’s Q111 balance of payments data support our view that the current account deficit is structural in nature, but it also reinforces our concerns that a painful withdrawal of short-term capital is on the cards if the authorities fail to act to stem rampant portfolio inflows
Table: CURRENT ACCOUNT16
Monetary Policy 18
No Inflationary Fears Here
Table: MONETARY POLICY18
Fiscal Policy 19
Gradual Decline In Sovereign Credentials
We do not expect Mexico to reduce its public sector debt burden to pre-crisis lows for the duration of our 10-year forecast
Table: FISCAL POLICY19
Banking Sector 20
Chapter 3: 10-Year Forecast 23
The Mexican Economy To 2020 23
Structural Barriers To Keep Growth Subdued
Sound macroeconomic policies should help Mexico register sustained levels of economic activity going forward, averaging 26% real GDP growth between 2012 and 2020, according to our forecasts
Table: LONG-TERM MACROECONOMIC FORECASTS, 2013-202023
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
Institutions 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS26
TABLE: BMI LEGAL FRAMEWORK RATING27
Infrastructure 28
TABLE: LABOUR FORCE QUALITY28
Market Orientation 29
TABLE: LATIN AMERICA, ANNUAL FDI INFLOWS29
Table: Trade And Investment Ratings30
Operational Risk 31
TABLE: TOP EXPORT DESTINATIONS, 2002-200931
Chapter 5: Key Sectors 33
Pharmaceutical 33
Table: Prescription Drug Sales Indicators, 2007-201534
Table: Patented Drug Sales Indicators, 2007-201535
Telecommunications 35
Table: Telecoms Sector — Internet — Historical Data & Forecasts 39
Other Key Sectors 40
Table: MEXICO Food and Drink Sector Key Indicators40
Table: MEXICO Autos Sector Key Indicators40
Table: MEXICO Infrastructure Sector Key Indicators40
Table: MEXICO Oil and Gas Sector Key Indicators40
Table: MEXICO Defence and Security Sector Key Indicators41
Table: Mexico Freight Transport Sector Key Indicators41
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS43
Table: EMERG ING MARKETS AGGREGATE GROWTH44
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST45
Table: REAL GDP GROWTH CONSENSUS FORECASTS45
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