Core Views W e 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. 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 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 forecast to 3.1% from 3.3%, compared to growth of 1.1% in 2013, due to weak private consumption growth in Q114. We have revised our 2014 average exchange rate forecast from MXN12.85/USD to MXN13.00/USD, following a weaker peso than initially expected in H114.
Table Of Contents
Mexico Business Forecast Report Q4 2014 Executive Summary.... 5 Core Views..5 Chapter 1: Political Outlook.. 7 SWOT Analysis.... 7 BMI Political Risk Ratings. 7 Domestic Politics .... 8 2015 Mid-Term Elections Crucial For PAN's Presidential Aspirations..8 Increasingly combative rhetoric from Mexico's main political parties in the run up to next year's mid-term elections makes the passage of additional major reforms unlikely, beyond the passage of secondary laws for energy sector reform in Q314. Table: Political Overview ...8 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 corruption. table: 2015 Governorship Elections.10 Chapter 2: Economic Outlook.. 13 SWOT Analysis.. 13 BMI Economic Risk Ratings. 13 Economic Activity.. 14 Growth To Accelerate In 2014 And 2015..14 The Mexican economy will accelerate in 2014 and 2015, driven by a recovery in public investment, as well as by an acceleration in export and private consumption growth. Fiscal Policy . 15 Public Investment To Drive Wider Deficit In 2014...15 Mexico's government budget deficit will widen in 2014, driven by an uptick in public investment following significant spending delays throughout most of 2013. However, fiscal reform will increase tax revenue over the coming years, result ing in a narrowing of the deficit in 2015. table: GDP By Expenditure.15 table: Fiscal Policy....16 Monetary Policy 17 Surprise Rate Cut Marks End Of Easing Cycle..17 We expect the Banco de Mexico (Banxico) to hold its policy rate at 3.00% through H115 following a surprise 50 -basis -point rate cut on June 6. We believe that stronger economic growth and above-target inflation will drive rate hikes in H215, and we forecast the policy rate to end 2015 at 3.50%. table: Monetary Policy.17 Balance Of Payments . 18 Manufacturing Exports To Drive Narrowing Of Current Account Deficit.18 Mexico's manufactured goods exports will expand at a robust pace in the coming years, driving a narrowing of the current account deficit. table: Current Account19 Exchange Rate Forecast . 20 MXN: Multi-Quarter Appreciation Ahead As Fundamentals Brighten.20 The Mexican peso will be prone to high levels of volatility in the next few months in light of choppy economic data and likely bouts of global risk-off sentiment in light of rising geopolitical risks. table: Exchange Rate20 table: BMI Currency Forecast...21 Key Sector Outlook 22 North And Centre Primary Beneficiaries Of Manufacturing Boom.22 Mexico will remain an attractive destinatio n for manufacturers, especially automakers, owing to its competitive wages, well-established production and supply networks, and ease of access to the US market. The n orth ern and c entr al regions of Mexico will benefit the most from the manufacturing sector boom, and we expect strengthening growth prospects in these regions to create significant opportunities in the services sector in subsequent years. table: Select Car Plants In Mexico By State23 table: Key Figures Of Autos-Producing States....24 table: Key Figures Of Autos-Producing States....25 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 4.0 % 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 TABLE: LABOUR FORCE QUALITY 34 Market Orientation.. 35 TABLE: TRADE AND INVESTMENT RATINGS ...35 Table: Top Export Destinations (USDmn)....36 Operational Risk .... 37 Chapter 5: Key Sectors.. 39 Pharmaceuticals and Healthcare.. 39 table: Pharmaceutical Sales, Historical Data And Forecasts40 table: Government Healthcare Expenditure Trends, Historical Data And Forecasts... 41 table: Healthcare Expenditure Trends, Historical Data And Forecasts 41 Telecommunications... 42 table: Private Healthcare Expenditure Trends, Historical Data And Forecasts... 42 table: Mobile-Historical Data And Forecasts,.43 table: Telecoms Sector-Wireline-Historical Data and Forecasts. 44 Other Key Sectors.. 47 table: Oil and Gas Sector Key Indicators.47 table: Defence and Security Sector Key Indicators....47 table: Infrastructure Sector Key Indicators.47 table: Food and Drink Sector Key Indicators...48 table: Freight Key Indicators....48 Chapter 6: BMI Global Assumptions. 49 Global Outlook... 49 Global Recovery Still On Track..49 Table: Global Assumptions....49 Table: Developed States, Real GDP GrowtH, %.50 Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 50 Table: Emerging Markets, Real GDP Growth, %51