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Mexico/EstudiosEconmicosCoface

INICIO ESTUDIOSECONMICOS MEXICO

POPULATION

119.581MILLION

MEXICO

GDP

1295.86US$BILLION

A4

A4

COUNTRYRISK
ASSESSMENT

BUSINESS
CLIMATE

SYNTHESIS

MAJORMACROECONOMICINDICATORS

2012

2013

2014(e)

2015(f)

GDPgrowth(%)

4.0

1.4

2.1

2.0

Inflation(yearlyaverage)(%)

3.4

3.8

4.0

2.9

Budgetbalance(%GDP)

2.6

2.3

3.2

4.0

Currentaccountbalance(%GDP)

1.3

2.4

2.1

2.7

Publicdebt(%GDP)

43.2

46.3

50.0

51.4

(e)Estimate(f)Forecast

STRENGTHS

WEAKNESSES

GeographicallyclosetoNorthAmericanmarket
Member of NAFTA, OECD, G20 and the Pacific
Alliance
CookieControl
NewIMFcreditlinerunninguntilJanuary2017
Largeindustrialbase
World Utilizamoscookiesparamejorar
scale player in cement, beer,
tlcommunications
nuestrosserviciosweb.
Smallexternaldebt
Sideseasactivarlas,hazclicenel
botnquemostramosa
continuacin.

DependenceonstateofUSeconomy
Publicrevenueslowandlinkedwithoil
Infrastructureandeducationweaknesses
Highcrimerate

RISKASSESSMENT

Estoydeacuerdo
Towardsaslowdownin2015
InformacinyConfiguracin
TheprospectsforgrowthintheMexicaneconomyin2015havebeenreviseddownwards,havingbeenaffectedby
theslowdowninlocalactivitylinkedtotheweakrecoveryintheUSandloweroilprices.Thenegativeeffectsofthe
Acercadeestaherramienta
strongerdollaronUSindustrialactivityarealsocontributingtotheslowdownintheMexicanmanufacturingsector,
whichisheavilydependentontheUS.Performanceintheoilsectorisnotexpectedtoimprovebecauseofthefallin
oilpricesandoilproduction.Moreover,theprospectsforanincreaseinprivateinvestmentexpectedfollowingthe
openingupoftheenergymarketseemmoremixedfollowingthedisappointingresultsofthefirstphaseoftenders
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midyear.Thebudgetaryconstraintsnecessarytooffsetthedeclineinoilrevenuesaswellasapossibleincreasein
interestratesbythecentralbankinkeepingwiththepolicyoftheFEDislikelytohaveanadverseimpactonactivity.
Domesticconsumptionhoweverseemstobeholdingupduetotheprogressionofrealwagesbecauseofarelatively
lowinflationrateandinspiteofthedepreciationofthepesoagainstthedollar(approximately25%betweenAugust
2014and2015).Moreover,theincreaseinmigrantremittancesshouldalsohelptosupportconsumption.

Budgetcutsneededtocompensateforfallingoilrevenues
In response to the 54% drop in oil revenues in January 2015 (the average negotiated price per barrel was
$39.25/barrelinJanuary2015,comparedwith$90.65/barrelinJanuary2014),thegovernmentannouncedbudget
cutswhichwillshaveoff$8.6billionfromthe2015budget(i.e.0.7%ofGDP).Almost50%ofthebudgetcutsrelateto
Pemex,whosebudgethasbeenslashedby$4.3billion.Thegovernmentisalsoexpectedtoreducethebudgetsof
other government departments and institutions. Faced with the prospect of a sustained fall in oil prices, the
Governmenthasalreadyplannedforadditionalbudgetcutsin2016,estimatedbetween1%and2%ofGDP.The
dropinoilincome,estimatedat7.5%in2014andwhichrepresentsalittleoveronethirdofpublicrevenues,ispartly
offsetbythegradualincreaseinnonoilincome(+6.1%,or46%oftaxrevenuesin2014).Thefiscalreformsadopted
in2014shouldresultinadditionalincomefortheState,estimatedat3%ofGDPby2018.

Thecurrentdeficitisexpectedtowidenduetothedeclineinoilexports
MexicoisextremelydependentontheeconomicsituationintheUnitedStates.Whilstmostcountriesareseeinga
slowingintheirtradingrelations,MexicanexportsaregrowingthankstotheupswingintheUSeconomy.80%ofits
exportsareshippedtotheUSandconsistmainlyofmanufacturedproducts,halfofwhicharemadeupofimported
components assembled in the maquiladoras located in the north of the country, operating in sectors such as the
automobile sector. Mexicos membership of the NAFTA (North American Free Trade Association) and its physical
proximitytoitsUSneighbourmeanitisinfirstplaceintermsofLatinAmericantrade.Despitethegrowthinmotor
exportsandagriculturalproducts,thetradedeficitshouldincreasein2015duetothedeclineinoilexportsbothin
value (fall in the price of oil) and in volume (fall in production). These developments are likely to contribute to a
worsening of the current account balance. The trade in services remains in deficit and the tourist revenues from
Americanscoverjusthalfoftheinsuranceandfreightcostsassociatedwiththetradeingoods.Therevenuedeficitis
shrinking, with the repatriation of profits by foreign companies being partly offset by the profits made by Mexican
companiesoperatingabroad.Foreigninvestments,twicethesizeofMexicaninvestmentsabroad,makeitpossibleto
coverthecurrentaccountdeficitandbuildreserves.The70billiondollarFlexibleCreditLinemadeavailablebythe
IMFfora2yearperiodwillalsoactasanadditionalbuffer.

Anambitiouspoliticalagendabutagovernmentweakenedbycorruptionscandals
The President, Enrique Pea Nieto of the centre PRI (Partido Revolucionario Institucional) party, in office since
December 2012, has obtained approval for the constitutional amendments required for the implementation of his
ambitious programme of structural reforms. The governments success will depend however on his ability to
implementthesereforms,tostimulateeconomicgrowthandtofightdrugrelatedcrime.Despitethedisappearanceof
43studentsabductedbylocalpoliceintheStateofGuerrero(inthesoutheastofthecountry)inSeptember2014
andthevariouscorruptionscandalsaffectingtheGovernmentandthepresident'simmediatefamilycircle,theruling
party was successful in the midyear legislative elections. The Government should continue along the path of its
reformsincludingthemostemblematic,theenergymarket,whichhoweverisprovingslowtomaterialiseduetoan
externalenvironmentwhichisnotconducivetoinvestmentintheoilsector.

Lastupdate:September2015

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