Mexico’s economy and risks

(Reuters) – Mexico‘s economy is the world’s 11th largest by World Bank estimates and total output is expected to grow by roughly 4 percent this year after a 5.5 percent expansion in 2010.

Mexico’s growth has lagged most Latin American economies over the last decade, posting weak economic growth as the country’s politicians put off major reforms to tax, energy and labor laws.

After plunging into a deep recession in 2008, total economic output recovered by the end of 2010 on the back of growth in factory exports. But measures of employment and consumer confidence have not yet returned to pre-recession levels.

INFLATION – In recent months, Mexico has enjoyed a sweet spot of an improving economic outlook and muted inflation. In the year-long period through the first half of March, annual inflation cooled to 3.09 percent, its mildest since July 2006.

The central bank has said it can tolerate annual inflation between 2 and 4 percent with a long-term target of 3 percent. In its latest analysts’ poll, the central bank reported expectations of 3.94 percent inflation this year and 3.79 percent in 2012.

CURRENCY – Mexico’s currency has surged along with its peers in Latin America as foreign investors snapped up peso-denominated bonds and other financial assets offering higher yields than those in developed countries.

Mexico’s peso has been trading at highs not seen since Lehman Brothers failed in September 2008. Officials have vowed not to tinker with the peso’s value and many analysts expect further strengthening through the year.

OIL – Crude oil sales fund about a third of the federal budget in Mexico, the world’s No. 7 oil producer, but output is off by about a quarter from its peak in 2004. In 2009, state monopoly Pemex stabilized production at around 2.5 million barrels per day.

The long-term picture is uncertain since new discoveries are few and the giant Chicontepec project has not delivered significant new production capacity.

Mexico’s rising reliance on imports of refined products means higher oil prices are a double-edged sword. Strong crude prices mean more up-front export revenue but Mexico losses importing gasoline which is also subsidized at the pump.

BUDGET – President Felipe Calderon has been shrinking the public sector budget deficit during his term.

Lawmakers approved a 2011 deficit equivalent to 2.5 percent of gross domestic product, down from the 2.8 percent deficit set in the 2010 budget – a target that was met.

POLITICS – Mexico will hold presidential elections in July 2012 for a successor to Calderon, who is constitutionally barred from a second term. His successor is slated to take power in December next year and current opinion polls suggest Calderon’s conservative National Action Party will not hold the presidency.

(Reporting by Patrick Rucker. Editing by W Simon )

Posted by: Conrado Garcia Jamin

About northernbarbarians

I'm an activist and advocate for human rights and the establishment of penalties to the simulators and inconsistent. My fight is for respect for universal rights and freedoms. Journalist various print and electronic media in several countries. Independent research analyst of social risks in unions, political, corporate and institutional image. Four books published and three in electronic version. Live one day at a time, even on payments, sometimes alive yesterday. Modest income is the price of freedom.
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