2011 Mexico's economic outlook

As natural on this period of the year, it is important to take a peek to the economic forecasts for the next year. I will analyze it considering three macroeconomic variables: GDP, inflation and exchange rate.

1.       GDP: as I mentioned on my note “Mexico’s GDP forecasts: threats and opportunities, wishes and realities” (http://beammx.blogspot.com/2010/11/mexicos-gdp-forecasts-threats-and.html), perspectives for the next year were between 3.5% and 3.9% in November. This forecast, lower than the results for 2010, is very influenced by the forecasts of USA’s economy. Since I published that note, the result for America’s economy on the third quarter of the year has exceeded expectations, and that may bring an increase on Mexico’s projections (private analysts consulted by Mexico’s Central Bank, BANXICO, increased on December their estimate to 3.59%), although there have been other voices, more conservative (a researcher from Tecnológico de Monterrey estimates an increase of 2.5%, and Moody’s estimates it will be between 3% and 3.5%).

2.       Inflation: on November, this is 4.32% according to BANXICO (compared with November 2009). Although it has increased on the second semester due to changes on agricultural produces and on electricity, BANXICO and analysts’ perspectives are a decrease for inflation (BANXICO estimates it will be 3% +/-1% for 2011 3^rd quarter, and International Monetary Fund estimated it will be 3%). Although the private analysts consulted by BANXICO made a recent adjustment to increase it (from 3.77% to 3.82%), it generally seems that the weak domestic market (“Employment in Mexico: improvements, but still a long way to go”, http://beammx.blogspot.com/2010/11/employment-in-mexico-improvements-but.html) won’t put inflationary pressures to the national economy.

3.       Exchange rate: since February 2010, it has been practically all the time on the range of 12.30 to 13.00 pesos per dollar, and the perspectives are it will keep that way. This outlook represents stability, but may compromise exports competitiveness.

So far, the projections sounds encouraging: PIB projections have been slightly increased (with some warning voices), inflation appears to be less than this year (with some recent increases), and the exchange rate seems to be relatively stable. It looks like a positive scenario, but not extremely optimistic. There are several world issues that must be closely followed since they may have a significant impact on these indicators:

·         The magnitude of America and some European countries governments’ debt.

·         The risk of “overheating” of some emerging economies, as China and Brazil.

·         Different governments decisions regarding their currencies in order to stimulate their international trade.

Plan over positive scenarios (if you are too conservative, other will take the opportunities that will arise), but let’s have clear that the country won’t recover 100% in all its sectors during 2011, and there are different economic issues showing a fragile world, so it will be convenient to be prudent and continuously monitor the variables mentioned above to timely identify possible changes in trends.