Research Dept. News
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Monthly Report, num 346 - May 2011
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International review - Mexico
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Mexico: a tranquil report
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The last IMF World Economic Outlook confirms the healthy state of the Mexican recovery.
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In its last World Economic Outlook, the IMF upped its forecast for the Mexican economy's growth in 2011, confirming that its scenario of macroeconomic prospects is still highly favourable. The recovery continues to consolidate, led by exports but also increasingly supported by domestic demand. And if this weren't enough, unlike other, not too distant economies with problems of overheating, Mexican economic growth is advancing free from inflationary pressures.
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Activity speeds up without generating pressure on prices.
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What is also advancing is the peso. In the last few months, the Mexican currency has speeded up its appreciation against the dollar, due largely to the good performance of manufacturing exports and the strength of capital inflows in relation to the small size (in relative terms) of the current account deficit. We do not expect this trend to reverse in the short term. The latest data on foreign trade show that exports without oil grew by a notable 23.7%. For its part, domestic demand is also showing clear signs of strength, boosted by the improvement in the labour market, the rise in the average real wage and improvements in credit.
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Although economic growth is gaining momentum and inflation is likely to pick up over the coming months due to base effects and the volatility of food prices, we have not changed our interest rate scenario and do not expect any rise until early 2012. In any case, we still do not entirely rule out the risk of food prices soaring or domestic expenditure recovering too strongly. Should this happen, the first rise in interest rates might come sooner than expected.
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Oil increases to 122 dollars per barrel.
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Not too many surprises are expected in the fiscal area either. The government and opposition are still immersed in a reform whose main aim is to reduce the treasury's dependency on oil revenue. After ruling out several proposals by President Calderón's party (PAN), the latest proposal presented by the PRI party appears unlikely to prosper either. However, a more constructive climate can be perceived between the government and opposition: without doubt, another piece of good news.
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