Key Mexico Indicators Bode Well for 2010 Recovery

Mexican trade and employment data provides more evidence that the national economy is on a steady path to recovery from severe recession.

Mexico's National Statistics Institute (INEGI) indicated that December exports jumped to $22.94 billion, up 23% year-over-year, leaving a smaller-than-expected trade deficit of $248 million.

Petroleum exports skyrocketed 93% to $3.4 billion in December, as Mexico enjoyed higher average oil prices. However, it was the revived manufacturing sector, up 15% in December, that garnered the most industry attention. At the same time, Mexican imports of intermediate goods, those essential to manufacturing for export, jumped 18% to $16.47 billion.

In its latest estimate, the Bank of Mexico forecasted Mexican Gross Domestic Product (GDP) to expand 2.5% to 3.5% in 2010. Most private-sector economists are even more optimistic, projecting GDP gains of 3.5% or higher, as international trade continues to recover.

New data in the Mexican job market also indicates that the Mexican economy is in recovery. INEGI reported that the jobless rate dropped to 4.8% in December, down from 5.3% in November -- the strongest unemployment rate since December 2008.

Mexican consumer price inflation (CPI), nevertheless, rose to 4.17% in the first-half of January. According to the Bank of Mexico, this increase was due in part to a rise in public transport fares and higher taxes instituted to shore up government finances.

Unlike the U.S., Mexico's banking sector did not require Federal government intervention, nor did the Mexican government have to rescue a devastated housing mortgage and real estate market. As a result, Mexico's banking sector remains robust, and housing prices and demand have remained largely unaffected.

Thus, the overall view of Mexican economy is much more favorable, as internal and external risks have begun to diminish establishing a solid foundation for recovery in 2010.

Brazil Poised to Become Latin America's Major Crude Oil Producer

With an abundance of natural resources and a flexible political climate, Brazil is quickly becoming the major crude oil producer in Latin America. It is anticipated that Brazil will take the lead, surpassing Mexico and Venezuela, in 2011 when several new wells begin producing.

Petroleum production in Brazil has grown rapidly since the 1990’s when the industry was opened to private competition, which ended the monopoly of the country’s state-run energy giant Petroleo Brasileiro, or Petrobras.

In December 2009, Anadarko Petroleum and Devon Energy announced the discovery of deposits, for the second time, in the region offshore of Rio de Janeiro called Campos Basin. Also, in another zone, called Campo Tupi, the two companies made the largest discovery in the Western Hemisphere since the Cantarell Field in Mexico in 1976.

Mexico to Auction Fiber Optic Space

Mexico’s Secretary of Communications and Transportation, Juan Molinar Horcasitas, has initiated a formal bid process for auctioning fiber optic space owned by the country’s Federal Electricity Commission (CFE).

According to Secretary Horcasitas, this is a vitally important development for Mexico’s telecommunications industry. With publication of the bid proposal, the Mexican government expects to generate major competition in the telecommunications industry -- principally for telephone, high speed internet and video transmission.

The Mexican Government expects to take in 858 million pesos ($66 million USD) over a 20-year period for the two CFE fiber optic lines being auctioned. This increase in competition is expected to result in lower consumer costs for telecommunications services.

Mexican Auto Industry Continues to Struggle in 2009

The Mexican Automobile Industry ended 2009 like it began, with a major decline in sales. “The past year was one of the worst in decades,” said Eduardo Solis, President of the Mexican Association of the Automobile Industry.

Approximately 755,000 units were sold in Mexico during 2009 by major auto manufacturers like GM, Ford, Nissan, Volkswagen and others – the lowest level since 1999. In contrast, these same companies sold well over a million new autos annually from 2004 to 2008.

The total production of autos reached 1.5 million units in 2009, a 28% drop from the same period in 2008. This decrease has produced repercussions in the auto parts industry, as well as with auto agencies. The value of auto parts produced has declined 29% in 2009 causing a loss of nearly 131,700 industry jobs and the closing of 110 agencies.

Competition Heats up in Mexico’s Growing Beer Market

Competition in the beer industry is heating up as Heineken and AF InBev vie for control of the rapidly growing Mexican beer market, now the fourth largest in the world. The aggressive entrance of AB InBev is changing the dynamics of the market, which poses new challenges for Heineken.

With the acquisition of the beer division of Fomento Economico Mexicano (FEMSA), Heineken is competing head-to-head with AB InBev in Mexico and Brazil, where the Belgian brewer controls 70% of the market.

Analysts predict that AB InBev is poised to become Mexico’s principal beer producer, due in large part to the company’s controlling interest in Mexican brewer Grupo Modelo (producer of the Corona brand) which AB InBev inherited through its acquisition of Anheuser-Busch. According to AB InBev CEO, Carlos Brito, the company still has much to do in the American Continent, including additional acquisitions.

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Sources of Information: In preparing this document, the following sources of information, among others, have been utilized: Sentido Común and Banco de México.

March 2010
Building Potential