Research Dept. News
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Monthly Report, num 350 - October 2011
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International review - Mexico
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Mexico: protected by domestic expenditure
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Domestic expenditure's good tone is protecting the Mexican economy from the slowdown in growth in the United States.
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A breakdown of GDP components for the second quarter of 2011 reveals a marked upswing in investment, up by 9.4% compared with the same period a year ago; a 4.3% growth in consumption; a 2.6% drop in public consumption; and upward trends in exports and imports of 8.1% and 6.8%, respectively (all these figures being year-on-year growth). Household spending and the good performance by private investment, as well as public, have confirmed their role as the main supports for Mexico's economic growth given a foreign demand that is increasingly hindered by the slowdown in the recovery of the advanced economies and particularly the United States.
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At this juncture, there are few doubts that this slowdown will continue throughout the second half of the year, forcing us to revise downwards our growth forecasts for the Mexican economy to 3.9% in 2011 and 3.5% in 2012 (previously 4.5% and 4%, respectively), in line with the new scenario we're contemplating for the United States.
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The bulk of the evidence available suggests that inflation will end the year within its target range, helping interest rates to fall should economic prospects worsen.
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This scenario of moderation has not gone unnoticed by the Monetary Policy Committee of Banxico which, in its last minutes, left the door open to a possible reduction in interest rates before the end of the year. In this respect, the recent trend in prices has prepared the ground for them: in year-on-year figures, inflation fell to 3.4% in August and the bulk of the evidence suggests that it will end the year close to 3% (within the central bank's target range). Nevertheless, we still do not expect any changes in monetary policy in the remainder of 2011 unless economic activity deteriorates more than expected in our main scenario.
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The situation looks a little more agitated in the fiscal area. In the coming weeks, the parliament will debate the 2012 Budget Project presented by the Federal Government and the commitment to fiscal stability acquired over the last few years will more than likely be maintained. However, we do not expect any changes of a structural nature that reduce the public treasury's dependence on oil or generate the necessary resources to significantly improve the country's infrastructures or educational system. Although there's no doubt that these are necessary and, sooner or later, inevitable, the closeness of the presidential elections, in July 2012, does not facilitate agreement along these lines.
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