Mexico Political and Economic Outlook 2011 to 2015

This hub takes a look at Mexico political and economic outlook for 2011-2015. The main sources for this outlook include Economist Intelligence Unit (EIU), CountryWatch, the U.S. State Department, and CultureGrams. According to the Economist Intelligence Unit updated report for November 2010, the following are the highlights of Mexico political and economic outlook for 2011-2015:

•       The opposition PRI will co-operate with the ruling PAN on some of the reform

proposals of the president, Felipe Calderón, but energy and labour reforms are

unlikely to advance during the remainder of his term, which ends in 2012.

•       For most voters the PRI will be the only acceptable alternative to a

beleaguered PAN, which, given the bleak economic outlook and the

deteriorating security situation, has weak prospects of securing a third term.

•       GDP growth of 5% in 2010 will mark only a partial recovery from a 6.6%

contraction in 2009. We expect growth to slow to 3% in 2011 as the US slows,

before firmer growth of around 3.8% annually in 2012-15, as the US picks up.

•       We now expect the central bank to keep interest rates on hold throughout

2011, but a solid inflation-targeting regime, combined with weak demand-side

pressures, will keep inflation contained. Rates are forecast to rise from 2012.

•       Reserves will help shield against volatility, but concerns about the recovery

will prevent peso appreciation in 2011. A wider current-account deficit and

the normalisation of US rates will prompt some weakening from 2012.

•       A wider trade deficit will increase the current-account deficit to 2.2% of GDP

by 2015, from an estimated 1.1% of GDP in 2010. However, given projected

investment inflows, this will remain manageable.

 

The country intelligence wire CountryWatch offers the following fun facts about Mexico:

Key Data Region: Middle America

Population: 109,561,057

Area Total: 1,972,550km²

Area Land: 1,923,040km²

Coast Line: 9,330km

Capital: Mexico City

Climate: Varies from tropical to desert.

Languages: Spanish, Various Mayan dialects.

Currency: 1 new Mexican peso (Mex$) = 100 centavos

Holiday: Independence Day is 16 September (1810), Constitution Day is 5 February, Cinco de Mayo is 5 May

Average Daily Temperature January: 13.30°C / 55.90°FJuly: 16.70°C / 62.10°FAnnual Rainfall: 762mm / 30"

Boundaries United States 3326km Guatemala 962km Belize 250km

Notable Cities City Population Estimated

• Mexico City 8,560,994 2010
• Ecatepec 1,997,036 2010
• Tiajuana 1,659,872 2010
  
  

Ethnic Divisions Mestizo 60 % Indigenous 30 % European descent 9 % Other 1 %

Religions Nominally Roman Catholic 89 % Protestant 6 % Other 5 %

According to the Economist Intelligence Unit's (EIU) report for November 2011, Felipe Calderon, the president of Mexico will remain in office until the end of 2012, but will continue to struggle with an uncooperative legislature. The legislature, mostly made up of members of the opposition party, has hindered progress on the president's reform agenda.

Even so, EIU observers forecasted the government will not lock down completely due to the opposition party's (the Partido Revolucianario Institucional) apparent willingness to cooperate with the ruling party (the Partido Accion Nacional). In order to appear cooperative the opposition party will go along on some issues to position themselves for more votes in the upcoming 2012 election. Still, Mexico President Calderon will be unable to force any real progress in major issues including taxes, labour, and energy policy.

EIU reporters forecasted President Calderon unlikely to win a third term and accordingly the opposition party PRI will regain the presidency in July 2012. However, there is an outside chance Calderon's party could form a coalition with the Partido de la Revolucion Democratica (PRD).

Conspicuous in its absence from the EIU report is any mention of the drug cartels and the continuing struggle to end the drug war. Although, they did mention that there is little chance the current government will be able to get the violence and rampant crime under control by the next election in late 2012.

Even as the economy has experienced a small bounce back from a contraction in 2009, the Economist Intelligence Unit observed that significant improvements in the Mexico economy are unlikely in in the forecast period. According to the EIU experts, Mexico Economic Outlook for 2011-2015 will be hindered by the slow pace of much needed upgrades to economic infrastructure and an over reliance on decreasing oil revenues.

While the government authorities are expected to attempt to improve the business environment by cutting red tape and improving competition, EIU experts believe these efforts will be insufficient to address the root causes of Mexico's sluggish economic growth bogged down by the infrastructure problems and an underperforming education system.

Moreover, a decline in crude production due to under investment by the Mexican state oil firm Petroleos Mexicanos (Pemex) and a weak non-oil tax base are expected to draw funds away from public investment. In the face of forecasted weakness in domestic demand, the government will be reluctant to cut expenditures in 2011 leading to a persistent fiscal deficit of 2.3% of GDP in 2011, The deficit is expected to decrease assuming stable growth in the latter part of the forecast period.

In terms of economic growth, Mexico Economic Outlook for 2011-2015 seems to indicate the Mexico will be one of the only Latin American countries not to make a full recovery in 2010. Furthermore, growth in at least the near term will be sluggish at best, estimated to 3% in 2011 and only slightly higher each year to 2015. Export-oriented manufacturing is foreseen to increase more than domestically oriented services due to evidence that some Chinese firms will choose to set up factories in Mexico for export into the US and other firms choosing Mexico over China due to lower transport costs. All other sectors including utilities and construction, tourism, agricultural and financial services are expected to remain weak with only gradual improvement in the forecast period.