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Mexico Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views
We remain optimistic about Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics. T he passage of energy sector reform will bolster sentiment towards Mexican assets and contribute to stronger real GDP growth in the coming years.
T he 2015 mid-term elections will be key if the main centre-right opposition party, the Partido Acción Nacional, is able 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 forecast to 2.6.% from 3.1% due to weak private consumption growth in Q114.

Table Of Contents

Mexico Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics 8
Energy Sector Reform Done, Political Gridlock Begins..8
The passage of energy sector reform in Mexico will mark the culmination of an aggressive reform drive by President Enrique Peña
Nieto, which will attract significant foreign investment into the sector in the coming years. We now expect political gridlock in congress
as the main parties of the pro-reform alliance adopt an increasingly combative rhetoric ahead of the June 2015 mid-term elections,
preventing the passage of additional major reforms over the next year.
table: Round Zero Allocations.8
Table: Secondary Legislation For Energy Sector Reform.9
Long-Term Political Outlook 9
Strengthening, But Challenges Remain9
The next decade looks set to be challenging for Mexico owing to a weak security situation, high levels of income inequality and endemic
Table : Politic al Over view 10
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity 14
Economic Recovery To Solidify In 201514
Mexico's real GDP growth will accelerate next year, driven by an improvement private consumption, stronger growth of manufacturing
exports and a recovery in public investment. Furthermore, we expect an uptick in private fixed investment into the country's recently
liberalised energy sector as the first oil licensing round begins in H115.
Table: Economic Activity14
Fiscal Policy 16
Fiscal Deficit Will Remain Relatively Wide In 2015..16
Mexico's fiscal deficit will narrow slightly in 2015, though it will remain above 3% of GDP - wide by historical standards. The main
drivers of a greater budget shortfall will be greater public investment, especially into infrastructure. This will result in a greater public debt
burden, though strong macroeconomic credentials will ensure relatively low financing costs.
table: Fiscal Policy.16
Monetary Policy. 17
Rate-Hiking Cycle Will Commence In H215.17
The Banco de Mexico (Banxico) will hold its benchmark policy rate at 3.00% through H115 to support the ongoing economic recovery.
Banxico will shift gears in H215, when we expect a hiking cycle to commence as concerns over economic growth ease and inflation
expectations begin to trend higher.
table: Monetary Policy..18
Balance Of Payments 19
External Account Improvements Ahead19
Mexico's current account deficit will narrow in 2014 and 2015, a consequence of stronger export growth as US demand for the country's
manufactured goods increases. Moreover, the liberalisation of the energy sector will result in a significant uptick in foreign direct
investment beginning in 2015, anchoring recurrent current account shortfalls in the coming years.
Table: Current Account.19
Exchange Rate Policy .. 20
MXN: Gradual Appreciation Ahead20
Stronger US demand for Mexican manufactured goods exports and an uptick in foreign direct investment into the recently liberalised
energy sector will drive a gradual strengthening of the peso in the coming quarters. However, the peso will continue to see high levels of
volatility due to the effects of monetary policy normalisation by the US Federal Reserve Bank.
TABLE: Currency Forecast..20
table : Exch ange Rate 21
Chapter 3: 10-Year Forecast. 23
The Mexican Economy To 2023.. 23
Stronger Growth Ahead Following The Passage Of Key Reforms.23
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. We expect Mexico's oil sector to become an increasingly important driver of growth following energy sector
liberalisation in December 2013.
table: Long-Term Macroeconomic Forecasts23
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk .. 28
Table: Operational Risk..28
Transport Network .. 29
table : Transp ort Netw ork..30
Economic Openness . 32
table: Economic Openness..33
Table: Imports By Product..35
Chapter 5: Key Sectors.. 37
Oil and Gas 37
table: Oil Production, 2012-2017 .38
table: Oil Production, 2018-2023..38
Infrastructure.. 41
table: Construction and Infrastructure Industry Data, 2013-2017. 41
table: Construction and Infrastructure Industry Data, 2018-2023. 42
Other Key Sectors 45
table : Pharm a Sect or Ke y Indic ators .45
table: Telecoms Sector Key Indicators45
table: Defence and Security Sector Key Indicators.46
table: Food and Drink Sector Key Indicators46
table: Autos Sector Key Indicators.46
Chapter 6: BMI Global Assumptions.. 47
Global Outlook 47
Big Emerging Market Revisions.47
Table: Global Assumptions.47
Table : Devel oped States , Real GDP Growt H, %..48
Table : Emerging Markets , Real GDP Growth , %.49

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