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Mexico Business Forecast Report Q2 2014

  • January 2014
  • -
  • Business Monitor International
  • -
  • 51 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.
The passage of energy sector reform will bolster sentiment towards
Mexican assets and contribute to stronger real GDP growth in the
coming years.

Major Forecast Changes

We have upgraded our 10-year average real GDP growth from 3.8%
to 4.1% following the passage of energy sector reform, which we
expect will garner significant foreign investment in the coming years.
We have revised our 2014 average exchange rate forecast from
MXN12.65/US$ to MXN12.55/US$, as the peso was stronger than
initially expected in 2013, when it averaged MXN12.76/US$.
We have revised our 2014 current account deficit forecast from
1.0% of GDP to 0.7% of GDP, owing to a strong export outlook,
particularly regarding the manufacturing sector.
We have revised our 2014 fiscal deficit forecast from 2.6% of GDP to
3.1% of GDP following the announcement of additional government
spending this year.

Key Risks To Outlook

A further deterioration in the construction sector poses significant
downside risk to our 2014 real GDP growth forecast. We expect the
sector to recover after it contracted for several consecutive quarters
since late 2012. However, homebuilders remain in a critical state
financially, which could lead to an additional deterioration of the
A deteriorating security environment also poses downside risk to
our growth outlook. Growing violence, particularly in the state of
Michoacán, could spread to other regions of the country and drive
investor pessimism. Under such scenario, the exchange rate would
be under pressure, which would weigh on household spending.

Table Of Contents

Mexico Business Forecast Report Q2 2014
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 Ratings 7
Domestic Politics 8
Energy Liberalisation Means A Bumpy Road For Peña Nieto 8
The recent approval of an energy sector liberalisation bill in Mexico, while monumental for the economy's long-term growth prospects,
will create an extremely challenging political environment for President Enrique Peña Nieto throughout the rest of his term Popular
perceptions towards energy sector reform remain highly divisive, and we expect social and political tensions to increase over the coming
Table: Political Overview 8
Long-Term Political Outlook 9
Strengthening, But Challenges Remain 9
The next decade looks set to be challenging for Mexico owing to a weak security situation, high levels of income inequality and
endemic corruption That said, our core view remains that the country will end the decade in a better position than where it is starting,
with potential for some economic reform and a modest improvement in the country's security situation, which will strengthen Mexico's
political risk profile
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Favourable Domestic And External Dynamics To Drive Stronger Growth 14
We forecast Mexican real GDP growth to accelerate from 1 5% in 2013 to 3 5% in 2014 amid an acceleration in household spending
growth and an improvement in investment, bolstered by a successful reform drive in 2013 In addition, exports will also pick up this year
as US demand for manufacturing exports strengthens
Fiscal Policy 16
Wider Budget Deficit In 2014 As Spending Picks Up 16
We forecast Mexico's government budget deficit to widen from 2 5% of GDP in 2013 to 3 1% of GDP in 2014 Greater fiscal expenditure,
following significant spending delays, will be the main driver of a wider budget shortfall in 2014 Fiscal reform will have a positive longterm
impact on revenue growth, though it will not be enough to offset greater spending
Balance Of Payments 17
Manufacturing Pickup To Drive Narrower Current Account Shortfall 17
We forecast Mexico's current account deficit to narrow to 0 7% of GDP in 2014 from 1 5% of GDP in 2013, driven by stronger
manufactured goods exports In addition, an expected increase in foreign investment amid an acceleration in economic growth and the
recent liberalisation of the energy sector will bolster the financial account
Monetary Policy 19
Above-Target Inflation To Prompt Tightening In H214 19
We expect Banco de Mexico to commence a monetary tightening cycle in 2014 as consumer price inflation heads above target and
economic activity accelerates We forecast a 25 basis points (bps) rate hike to 3 75% by end-2014 and 50bps in additional hikes to
4 25% in 2015
4 www businessmonitor com Business Monitor International Ltd
MEXICO Q2 2014
Exchange Rate Policy 21
MXN: Appreciation Over A Multi-Month Period 21
Regional Sovereign Risk Ratings 22
Credit Deterioration Has Largely Run Its Course 22
The deterioration in the credit profile of Latin American and Caribbean sovereigns seen over the course of 2013 has largely come as far
as it will go after a substantial re-pricing of credit risk in the region
table: Latin America Sovereign Risk Ratings - Evolution Of Ability To Pay 23
table: Latin America Sovereign Risk Ratings - Evolution Of Willingness To Pay 24
Chapter 3: 10-Year Forecast 27
The Mexican Economy To 2023 27
Stronger Growth Ahead Following The Passage Of Key Reforms 27
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 Forecasts 27
Chapter 4: Business Environment 31
SWOT Analysis 31
BMI Business Environment Risk Ratings 31
Business Environment Outlook 32
Institutions 32
Table: BMI Business And Operation Risk Ratings 32
Infrastructure 33
Table: BMI Legal Framework Rating 33
Market Orientation 35
Table : Top Export Destinati ons (US$mn ) 36
Operational Risk 37
Chapter 5: Key Sectors 39
Autos 39
table: Autos Sales By Segment, 2010-2017 40
Food and Drink 41
table: Food Consumption Indicators, 2010-2017 42
table: Hot Drinks Value Sales, 2010-2017 44
table: Mass Grocery Retail Sales By Format, 2010-2017 45
Other Key Sectors 47
table: Oil and Gas Sector Key Indicators 47
table: Pharma Sector Key Indicators 47
table: Infrastructure Sector Key Indicators 47
table: Defence and Security Sector Key Indicators 48
table: Telecoms Sector Key Indicators 48
table: Freight Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Momentum To Continue In H114 49
Table: Global Assumptions 49
Table: Developed States, Real GDP GrowtH, % 50
Table: Emerging Markets, Real GDP Growth, % 51

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