Mexico is a federal constitutional republic in North America, bordered by the United States on the north and by Belize and Guatemala on the south-east. The south and west is flanked by the Pacific Ocean and the Gulf of Mexico on the east. Mexico’s has an estimated population of 111 million, and its economy is the 13th largest in nominal GDP terms ($1.143 trillion -2009) and the 11th largest by Purchasing Power Parity (PPP, $1.563 trillion – 2009). Furthermore, Mexico’s economy is part of the North American Free Trade Agreement (NAFATA), a trilateral trade bloc in the region comprising of the US, Canada and Mexico.
Mexico Economy: Profile
Mexico has benefited from the NAFTA; being a free market economy, it has increased its trade with the US and Canada threefold. Furthermore, over 90% of their trade falls under twelve free trade agreements spanning more than 40 countries worldwide. The Mexican GDP grew at an average rate of 5.1% during 1995-2002. The recent economic recession and more specifically, the downslide in the US markets impacted this growth in a negative way. The annual average growth for the GDP in 2005 dipped to 3-4.1%.
In 2009, the economic profile for Mexico took a turn for the worse. Widespread disease in the form of a flu outbreak added to the failing economy in 2009. Policy stimulus proved inadequate against the background of limited fiscal stimulus and monetary relaxation. From an all-time low rate of annual inflation of 3.3% in 2005, this rate has only recently displayed signs of reducing from 6.4% in 2008 to 5.4%. These fluctuations are largely caused by the economy of Mexico’s close association with US business and trade.
Recovery Process: Mexican Economy 2010
For the year 2010, the growth figures pertaining to the Mexican economy indicate signs of a recovery. The Mexican Finance Ministry has increased the growth figures from 3% to 3.9%. This upswing was the result of significant improvement in Mexico’s exports, automobile production, manufacturing and increased imports of consumer goods. Employment
is also on the rise alongside an increase in foreign and domestic demand, despite a deep divide in economic distribution, where 32% of the top earners take in 55% of the country’s total income.
Mexico - Fast Facts
Mexico is an Upper Middle income economies coming under the Latin America
and Caribbean region as to the classification made by the World Bank on the basis of income and region for the year 2006.
has a free market economy system. Exports sector of the country's economy has brought tremendous economic success in the recent years. Services constitute a larger share in the total GDP of the country followed by the industries.
Major agricultural products of the country are wheat, sugar, coffee, and cotton. Important industries are chemicals, electric goods, tourisms, textiles, and rubber. The country has larger deposits
of the various minerals such as zinc, lead, manganese, bauxite and uranium.
Foreign Direct Investment in Mexico
Mexico is a populous Latin American nation. It possesses an open trade regime thanks to the North American Free Trade Agreement (NAFTA). Foreign direct investment
in Mexico is reported to have recorded a 21% increase in the year 2007. It amounted to US$23.2 billion or €15.7 billion. This was the second highest in the country's history. It was only next to the US$29.5 billion investment made in 2001.
About half of the FDI investment to Mexico came from USA. Holland and Spain followed suit with an investment percentage of 15% and 10% respectively. FDI inflow within September 2007 for Mexico amounted to $18.4 billion. It was 30.3% higher in comparison to figures for the same time period in 2006. Half of the capital investment in the form of FDI was meant for the manufacturing sector. It implied an increased availability of remunerative jobs for the Mexican populace.
Analysts have considered 2008 to be an irregular year with the US economy suffering from multiple effects of recession. It may be noted that, Mexico is highly dependent and interlinked with the US economy through various trade relations.
Mexico's expected foreign direct investment stands to the tune of $20 billion for 2008. This is a scaling down from the 2007 estimate of $23 billion.
FDI Trend in Mexico, Performance during the 1990s
In this era the focus was on foreign direct investment is normally executed through the engine of TNCs or transnational corporations. The share of global FDI flows destined for Latin America increased from 32 % in the year 1990 to 43% in the year 1998. Most of these were meant for the Latin American countries like Argentina, Mexico, Brazil and Chile.
A host of factors were responsible for this increased inflow of FDI to these Latin American countries in general with particular reference to Mexico.
Prime among them was the countrywide implementation of privatization policies and programs of debt conversion. Other important policy changes that were effected involved trade able sector liberalization repeal of restrictive FDI regulations regarding issues like profit repatriation, need for prior authorization for investments and various sectoral regulations.
In addition to the above deregulations, the fairly good performance of various macroeconomic stabilization measures for the Mexican economy boosted the confidence of foreign as well as domestic investors in the country's economy.
It may be noted that FDI inflows are crucial for the modernization of the Mexican economy. It is also considered to be one of the employment generating avenues for the Mexican economy.
It may be noted that, robust FDI flows into Latin America in recent years were propelled mostly by Greenfield investments, which comprise expansions and new investments in place of cross border merger and acquisitions.
This trend was a reflection of the robust local economic growth and high corporate profits (earned mostly due to a commodity price hike).
Analysts estimate that, Mexico might register an increase in its FDI in recent future if the country persists with its policy of opening up the domestic telecommunications sector to foreign investment.
As per the estimates of an analyst, in the coming 4 years Mexico may register FDI to the tune of $7 billion yearly from foreign telephone companies in the arena of telephone line businesses with fixed lines.
Mexico Economic Stimulus Package
In January 2009, President Calderon, in order to prevent layoffs, has added $150 million in Mexican economic stimulus package. Mexican central bank
has cut its lending rates from 8.25 percent to 7.75 percent. Inflation of 6.5 percent in 2008 is expected to reduce to 5.4 percent in 2009 and down to 3 percent in 2010. Mexican ‘peso’ has been badly affected because of decreased oil exports to United States, main trading partner of Mexico.
A Mexico economic stimulus package of $5.6 billion had been announced by their President Felipe Calderon in March 2008. This economic stimulus package in Mexico is being provided in form of utility rates discounts, tax breaks and spending programs. In its efforts to strengthen domestic economy, national government has planned new investments in infrastructure development, housing, agriculture and diversification of exports in economic stimulus package of Mexico.
Agustin Carstens, finance minister of Mexico had estimated a growth rate of 2.8 percent in 2008 as compared to 3.7 percent in 2007. This reduced growth rate is due to a devastating money market and economic slowdown of neighboring United States. Present financial situation in Mexico calls out for an economic stimulus package for Mexico to be provided immediately.
Companies have been given an income tax relief of 3 percent and a reduction of 20 percent in electricity rates as part of economic stimulus package to Mexico. These companies are also provided with certain compulsory payroll benefit options. Mexican state owned oil company, Pemex Oil would increase spending by $935 million in way of repairing its old pipeline network.
Felipe Calderon has said while declaring Mexico economic stimulus package that economic performance of United States of America, its major trading partner has been well nigh unimpressive. Housing sector and financial sector of United States of America have been hit hard by global financial recession and this has in turn affected Mexico as well.
In 2008 finance ministry of Mexico had lowered its estimate of growth for that year to 2.8 percent and this was lesser than 2007 when 3.7 percent had been predicted. This has increased importance of Mexico economic stimulus package.
Mexico Economic Review
As per latest Mexico economic review national economy has depreciated at a rate of 2.41 percent in December 2008 compared to December 2007. Much of this has been owing to ongoing financial crisis all over world as well as disturbances in service sector of Mexican economy.
According to Mexico economic reviews by national statistics agencies volume of economic production in December 2008 has been 3.42 percent lesser compared to November that year. This data has been calculated on a basis of seasonal adjustments.
Recent economic review of Mexico has revealed that experts of Mexican goods and services to United States of America have gone down to a significant extent. Consumers in USA have stopped buying goods from Mexico such as cars and televisions.
It has also been confirmed by fresh economic review in Mexico that in December 2008 amount of industrial production has gone down at a rate of 5.9 percent when compared to December 2007. This statistic takes into account production in oil and gas industry and manufacturing sector of Mexican economy.
Latest economic review at Mexico reveals that various manufacturing industries in Mexico have been feeling aftereffects of global financial downturn to maximum extent. This sector has had to do away with jobs of a number of workers and outlook of consumers towards this industry has been really negative of late. In December 2008 service sector of Mexican economy depreciated at a rate of 1.8 percent.
Agricultural sector is a comparatively smaller sector of Mexican economy. New Mexico
economic review has revealed that it has appreciated at a rate of 15.8 percent. As per latest Mexico economic review on February 25th 2009 peso has depreciated to a significant degree. This is an ominous sign for Mexican economy.
Noted economists and financial analysts
, after their Mexico economic review, have said that Mexico’s economy is suffering grievously as a result of economic turbulences in USA. Its stock markets are being affected as well. This is because USA purchases 80 percent of all goods and services exported by Mexico. This global financial catastrophe kicked off in August 2008 and since then peso has lost 33.3 percent of its worth with respect to United States dollars.
Mexico Economic Growth
Mexico economic growth is marked by GDP purchasing power parity, which was estimated to be $1.578 trillion in fiscal year 2008. Official exchange rate of GDP of Mexico, 2008 was $1.143 trillion. There was 2 percent real growth rate in Mexico GDP of 2008. Per capita (PPP) GDP as was anticipated in 2008 was $14,400.
In year 2008, Carstens anticipates that Mexico’s GDP will expand by 4 percent. This growth can be achieved if problems in US housing and credit markets are settled. From fourth quarter of year, Mexico economy will start to look up. Housing market of US will have recovered and it is also assumed that industrial output will increase. This would lead to substantial economic growth in Mexico.
In 2009, it is expected that there will be 0.6 percent economic growth at Mexico but financial crunch and credit crisis can make Mexican economy weaker and thus it can not match assumption of growth that is expected. So, while according to assumptions, when there can be an expansion in Mexico economy by 2.3 percent in 2008, in contrary there can be slowdown in Mexico economy by 1 .6 percent in 2009.
Economic growth of Mexico is evident at various sectors of Mexico economy. Different sectors of economy of Mexico contribute differently. In fiscal year of 2008, agricultural sector had contributed about 3.7 percent, whereas it was 34.1 percent for industry. Service sector contributed 62.2 percent to Mexico gross domestic product.
Regional GDP was 25.7 percent in 2008, while GDP per head has been calculated to be 8,315 US$. Mexico has a free market economy, which is a blend of modern and old fashioned industry and agriculture, which is dominated by private sector. In recent years, there has been economic growth of Mexico development is found in natural gas distribution, electricity generation, airports, seaports, railroads and telecommunications.
For Mexico economic growth, government has taken various steps to upgrade infrastructure of country. Tax system and labor laws and decline of inequality in income are main areas of focus for improvement by government. 16 largest companies of world are located in Mexico itself. Tax, pension and judicial reforms were there in Mexico. Currency policy and monetary system also help in the Mexico economic growth and contribute to Mexico GDP.
Mexico Economic Development
Mexico economic development is high on agenda of Barack Obama as he wants number of illegal immigrants in USA to go down. One way of achieving this, according to him, is to help with economic development of Mexico.
Among higher levels of Mexico governance it is believed that in 2009 exports of Mexico to USA would come down to round about 80 percent of what they were in 2008. This is supposed to have a serious impact on economic development of Mexico. Much of this could be attributed to present global economic conditions
Antonio Oscar Garza Jr. who is working in capacity of American ambassador at Mexico is optimistic that world financial crunch of 2009 would not affect long term potential for economic development in Mexico.
An important aspect of economic development in Mexico is making sure that flow of labor stays uninterrupted in northern region. Flow of capital to southern region of Mexico has to be kept steady as well so that national economy keeps functioning.
Much of economic development at Mexico hinges on reforms that are to be put to effect in energy sector. These reforms are supposed to address various critical issues within Mexican economic system.
As far as labor force of Mexico is concerned, immigration is a matter of major concern – one that can actually hurt Mexico’s economic development. This is a matter that is being discussed at higher levels at both Mexico and United States of America for some years now and a workable solution is still to be arrived at by these two parties.
Mexico economic development has also been helped to a great extent by various Free Trade agreements it has signed over years. In this respect North American Free Trade Agreement or NAFTA has benefited it to a significant extent.
As per economic predictions, 2009 is going to be a detrimental year as far as Mexico economic development is concerned. Much of this would be as a result of falling demand of petroleum and related goods throughout this year.
Manufacturing exports are also supposed to come down in 2009. This would be hugely significant in diminishing prospects of Mexico economic growth. Prices raw materials have been taking a turn for worse and this is a bad omen for economic development of Mexico
Mexico Economic Forecast
As per latest news on Mexico economic forecast Banco de Mexico, which is central bank of Mexico, has reduced its predictions on growth prospects of national gross domestic product. It has been learnt that as per new Mexican economic forecast by central bank of Mexico its national economy would be depreciating at a rate of 1.8 percent in fiscal 2009.
Much of economic forecast of Mexico is premised on its export scenario that has been weakening at a steady rate since recession hit United States of America, which is its principal trading partner and major buyer of goods and services. In USA demand for goods and services made in Mexico has been falling at a steady rate.
Latest economic forecast in Mexico has also confirmed that any deductions in rates of interest by central bank of Mexico would be based on how inflation over there shapes up to be in coming months.
Fact that economy of Mexico had depreciated at a rate of 1 percent in final quarter of 2008 fiscal has contributed to present economic forecast at Mexico. Previously in its economic forecast for Mexico, central bank had prophesized that rate of growth of gross domestic product of Mexico in fiscal 2009 would be ranging from 0.5 to 1.5 percent.
Newest economic forecast for Mexico has confirmed that if any excess expenditure is made for reviving Mexican economy it would be done only if inflation is equal to forecasts that had earlier been made in this regard.
It has also been said as part of Mexico economic forecast that in 2009 fiscal there would not be too much of a slowdown as far as rate of inflation is concerned. In 2008 fiscal rate of inflation in Mexico was 6.53 percent.
This Mexico economic forecast would mean that central bank of Mexico would not be cutting down on its rates of interest in 2009 fiscal. Inflation is a major issue behind this decision of apex bank of Mexico.
National currency of Mexico, peso, has depreciated at an unprecedented rate in March 2009. This has been third straight day that this has happened and as per many a Mexico economic forecast situation is only going to get worse in days to come.
Indo-Mexico Economic Relationship
Mexico is special in terms of its relations in the International scenario. Presently it is a member of the world's largest economic area NAFTA and has a free trade agreement with the European Union. It has FTAs with some 30 countries, including some countries of Central and South America.
Mexico was the first Latin American country recognizing India better. Jawaharlal Nehru sent his sister Vijayalakshmi Pandit as India's first ambassador to Mexico.
The Prime Minister Rajiv Gandhi had visited to Mexico in the late 1980s was joint activism on the disarmament front. India's nuclear tests in May 1998, however, generated some political distance from Mexico, which swears by nuclear disarmament. Equally significant have been the differences on UN Security Council expansion.
As two major emerging economic powers and inheritors of a strong diplomatic tradition, India and Mexico are now well on the way to doing a lot more together on the world stage.
Though there is an overall economic slowdown, including trade stagnation over the last three years still, Indo-Mexican bilateral trade has been growing at a remarkably stable rate. In the year 2003, Indian exports to
">Mexico are expected to cross US$ 530 million, registering a growth of over 16%. Mexico has already regained its position as the top destination for Indian exports to Latin America. Though Mexican exports to India, mainly crude, have also increased substantially over the last three years, the net balance still remains in favour of India. Indian exports basket to Mexico having high substantial potential for future expansion is pharmaceuticals; gems & jewellery; power sector equipment and auto parts. The services sector, mainly IT and software, also offers tremendous future scope.
The Major difficulty behind the promotion of trade between the two nations is geographical distance, lack of direct shipping facilities, expensive credit, language barrier and absence of interest among Indian companies to explore long-term linkages. For enhancing the trading between the two nations an important step in this direction was the offer of a unilateral line of credit for an amount of US $ 10 million by the Exim Bank of India to its Mexican counterpart, Bancomext, for promoting bilateral economic and trade relationship.
Mexico represents a large, stable and growing market both for trade and investment. Investments made by persons of Indian origin in Mexico for the period 1994- 2000 amounted close to US $ 1600 million in nearly 50 joint ventures. These investments are generally dominated by investments in the steel sector. Mexico's FTAs with a large number of important trading partners can help Indian companies in achieving better market access by way of joint ventures and investments).
Present Policy Initiatives
A number of bilateral policy initiatives are undertaken currently for enhancing the bilateral trades between the two nations. Both the countries are trying to establish a joint business group to keep the business community fully engaged in the future planning. The Exim Bank of India has extended a credit line of US$ ten million for promotion of Indian exports and projects to Mexico.
Mexico is already the largest destination for Indian exports in Latin America with a steady upward trend. The strength of this market is its stability. Though commodity trade would remain as a major activity in the short-term still, the Indian
businessmen would be well advised to explore long-term linkages by way of joint ventures and investments.
Mexico Trade, Mexico Exports, Mexico Imports
Mexico is the world’s 11th largest economy. It is known for being a free trade economy that is heavily geared towards exports. Mexico’s trade is based on free trade agreements with more than 40 countries, including Japan, Israel, EU and various Central and South American countries.
Mexico Trade: Exports & Imports under NAFTA
Mexico’s main free trade agreement involves a trilateral trade bloc between Mexico, the United States and Canada. This agreement came into force in 1994 and immediately brought about the elimination of tariffs on more than half the goods imported into the US from Mexico and roughly one third of all goods exported to Mexico from the US. The ultimate aim of the agreement is to completely eliminate US-Mexico trade tariffs within a period of 10-15 years. Meanwhile, the agreement also accounts for 50% of all Mexican exports and 45% of its imports.
The countries that Mexico imports from include:
• United States: 44.3%
• China 5.5%
• Japan: 4.1%
• South Korea: 5.3%
• Brazil: 31.5%
• Chile: 9.3%
Oil is Mexico’s main export and the largest generator of foreign income in the country. Mexico is the sixth largest oil producing country in the world, producing 3.7 million barrels daily. In fact, the production of oil is regulated by the Mexican government with private companies handling the production and shipping of oil.
Besides oil, Mexico exports the following goods to other countries:
• Processed foods
• Cellular phones
• Industrial equipment
• Information technologies
Automobile exports from Mexico are another main revenue earner for the country. Many major automobile manufacturers are located in the country, such as General Motors, Ford, Chrysler (who have been in Mexico since before the Second World War), along with Volkswagen, Nissan, Honda, Mercedes-Benz and BMW. With an infrastructure that can support R&D, as well as manufacture of components and ancillary industries, many Asian automobile manufacturers have recently set up shop in Mexico.
Mexico Industry Sectors Poised for Growth in 2010
Mexico’s main industries are tobacco, chemicals, iron and steel, textiles, automobiles, consumer durables and tourism. Its close proximity to the US also makes it a strategic location for the development of Mexican industry sectors such as manufacturing, aerospace and automobile. These sectors look poised for growth in 2010. Roughly 90% of the revenue generated from exports is earned from various Mexican industry sectors.
Mexico Industry Sectors: Manufacturing
Manufacturing has steadily grown despite the ups and downs of economic tide, as evident in the 1994 Peso devaluation crisis, the 2001 Latin America downturn and recently, the late-2000s American economic recession. On average, manufacturing increased 2.3% in the 1980s, 3.9% during 1988-98.
Companies from United States started setting up in Mexico because it has the raw materials, besides, low duties under Mexico’s free trade agreements which make manufacturing in Mexico an attractive proposition. Manufacturers have also graduated from simple assembly to research and development of components. It also makes an excellent option to China for foreign firms looking for less expensive markets than their own.
Automobile manufacturing is one of the most important industry sectors of Mexico’s industry. Amongst those who have already set up operations in Mexico are:
• General Motors
Automobiles are the second largest export category from Mexico, so is the aerospace industry. In the aerospace industry, most of the players are foreign firms such as MD Helicopters and Bombardier. Between 2005 and 2010, the number of aerospace companies in Mexico went up from 61 to 193.
Mexico Industry Sectors: Maquiladoras and the Future
The re-export industry is an interesting development. Some 3000-odd factories situated next to the US border (called ‘maquiladoras’) assemble goods that are brought in from the US under contract and these are exported back to the US duty free. The closest competitor Mexico has in this field is China; in terms of lower costs. In spite of the fluctuations, US companies are expected to invest over $2.5 billion in Mexico in 2010, generating 30% more jobs locally.
Recovery Process: Mexican Economy 2010
For the year 2010, the growth figures pertaining to the Mexican economy indicate signs of a recovery. The Mexican Finance Ministry has increased the growth figures from 3% to 3.9%. This upswing was the result of significant improvement in Mexico’s exports, automobile production, manufacturing and increased imports of consumer goods. Employment is also on the rise alongside an increase in foreign and domestic demand, despite a deep divide in economic distribution, where 32% of the top earners take in 55% of the country’s total income.
Mexico’s Economic Structure & Recession
The 11th largest economy in the world, Mexico’s economic structure is largely influenced by it’s free trade stance. Over 90% of trade in Mexico is conducted under free trade agreements it with more than 40 countries. Mexico’s main free trade agreement, the North American Free Trade Agreement (between Mexico, the United States and Canada) accounts for 50% of all Mexican exports and 45% of its imports. Recent developments in infrastructure, industrial and service sectors of the Mexican economy have increased the appeal of Mexico as a manufacturing and outsourcing business hub.
Mexico Economic Structure: Primary Sector
By 2000, agriculture in Mexico contributed as less as 5% to the country’s GDP. Mexico main agricultural products are:
In 2009, Mexico exported goods worth $4.7 billion to the US alone. Free trade has led to more competition in the country. Globalization has brought to light several issues pertaining to:
• small-scale production
• inadequate infrastructure
• absence of credit
• communal land ownership
Mexico Economic Structure: Secondary Sector
Automobile manufacturing is one of the growing sectors in Mexican economy. Mexico is the biggest exporter of cars to the US. GM, Ford and Chrysler have been operating out of Mexico since the 1930s. Further, Volkswagen, Nissan, BMW, Honda, Toyota and Mercedes-Benz have also set up base in Mexico.
Maquiladoras are foreign-owned Mexican factories that are engaged in labor-intensive assembly of goods. Roughly, 100 new Maquiladoras spanning automobile, aeronautics, electronics, metal and mechanical works and alternative energies, are slated to begin production in 2010. This will help the Mexican economy to recover the 118 thousand jobs that it lost during the 2009 economic recession.
Mexico Economic Structure: Tertiary Sector
Services generate 70% of the Mexican GDP and employs over 50% of the workforce. They comprise primarily of tourism, transportation, commerce, hospitality and food services, healthcare, finance and banking, telecommunications, defense and public administration.
Mexico also has the largest Latin American service sector but there are some difficulties that need to be tackled in this sector. Tourism fell by 17.1% in 2009, transportation and storage by 10.4%. The recession too, saw demand for goods drop and unemployment soar. While the 2010 growth forecasts for the Mexican economy is back on track, up from 3% to 3.9 %, this increase is based on the increase in foreign and domestic demand.
Mexico Housing Recovery Signals Gain for Homebuilders
Jens Erik Gould & Jonathan J. Levin - Bloomberg
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July 13, 2010
Consorcio ARA SAB Chairman German Ahumada Russek says the 2009 recession caused revenue at the Mexican homebuilder to stall. As the economy improves this year, he expects total sales will increase 10 percent.
“There’s practically no inventory in Mexico City,” said Russek, chairman of the country’s third-largest homebuilder by market value, in a telephone interview from the Mexican capital two weeks ago. “People are definitely a lot more optimistic now that employment is recovering.”
Homebuilders are poised to rally as Mexican jobs rise to a record and government-subsidized mortgages boost demand, according to Alejandro Garza, a money manager at Emerging Markets Management LLC, and Ben Laidler, head of Latin America strategy at JPMorgan Chase & Co. This year through yesterday, the Habita index of six Mexican homebuilders including ARA, Urbi Desarrollos Urbanos SAB, Desarrolladora Homex SAB and Corporacion GEO SAB has fallen 15 percent, more than the 0.8 percent drop in Mexico’s benchmark IPC Index.
“We are very bullish on the housing sector,” said Garza, who helps manage $12.7 billion in equities at the Arlington, Virginia-based company. “The uptick in the domestic economy should also be very favorable for the homebuilders.”
Jobs may surpass the record 14.48 million this month, Labor Minister Javier Lozano said, as Latin America’s second-biggest economy recovers from a 6.5 percent contraction in 2009, the steepest slump since the 1930s. Mexican Finance Minister Ernesto Cordero said in an interview last week that the government may increase its 4.1 percent growth forecast for this year.
Year’s Job Growth
Mexico added 513,373 jobs in the first half, reaching the central bank’s forecast of 500,000 to 600,000 new positions for all of 2010, after losing 181,271 positions last year. The data in Mexico include only jobs that guarantee pension and health benefits and require workers to contribute to the housing agency.
Economy Minister Gerardo Ruiz Mateos said in an interview last month that Mexico probably will add about 750,000 jobs this year by boosting manufacturing sales to the U.S., which buys about 80 percent of its exports.
Joblessness in Mexico declined to 5.1 percent in May after reaching 6.4 percent in August 2009, the highest since records began in 2000. In Brazil, the unemployment rate rose to 7.5 percent in May from 6.8 percent in December, the lowest since records began in 2001.
The Habita index was trading at a 19 percent discount relative to the IPC index yesterday. The two indexes on average traded at a similar valuation during the past five years.
The MSCI Mexico/Consumer Discretionary Index, which includes Homex and Urbi, will outperform the broader IPC index this year, said JPMorgan’s Laidler. The IPC will rise 20 percent to 38,500 by year-end, he said. He doesn’t have a forecast for the Habita index of homebuilders. Urbi will gain 51 percent to 37 pesos by the end of the year, Laidler forecasts.
Urbi rose 1.2 percent to 24.45 pesos at 9:37 a.m. New York time in trading on the Mexican stock exchange. Homex advanced 0.3 percent to 57.80 pesos, while GEO climbed 1.2 percent to 33.80 pesos and Consorcio ARA was little changed at 7.97 pesos.
Alma Beltran, a spokeswoman for Urbi, Mexico’s largest homebuilder by market value, didn’t respond to requests for comment. Alejandro Haiducovich, a spokesman for GEO, the country’s third-biggest homebuilder, declined to comment.
Ahumada of Consorcio ARA said overwhelming demand caused his company to lose sales in recent months when agents told customers there was a six-month wait for some new developments in the capital to be completed. Demand remains slow in some parts of the country, such as tourist destinations and areas where drug-related violence is high, he said. Total sales increased 2.2 percent in 2009, according to company reports.
Sales at Homex will increase as much as 14 percent this year, following a 3 percent gain in 2009, Chief Executive Officer Gerardo de Nicolas Gutierrez said in an e-mail. The company, Mexico’s second-biggest homebuilder by market value, added 2,000 jobs in the first quarter, he said.
“The improvement in job creation and recovery has a positive impact on domestic demand and consumer confidence,” Gutierrez said. “That has a positive impact on the consumption of goods and services such as housing.”
The jobs recovery is giving the government’s housing agency, known as Infonavit, more capital to provide mortgages, Homex Chief Financial Officer Carlos Moctezuma said on a conference call last month.
Regional Jobs Growth
Mexico’s job growth still trails that of Brazil, which forecasts 2.5 million jobs this year. Mexico has added 819,953 jobs since President Felipe Calderon, who campaigned as the “president of employment,” took office in 2006. Brazil, with double the population of Mexico, created 5 million jobs in that period.
There are signs that consumer demand still lags behind the broader economic rebound. Retail sales unexpectedly fell 0.1 percent in April from a year earlier.
Mexico’s economic growth probably will be less than in Brazil, where the central bank expects a 7.3 percent expansion this year. Peru’s central bank expects growth of 6.6 percent, while Colombia’s government forecasts 3 percent.
Mexico had a housing crisis after the peso devaluation in 1994 sent interest rates surging, causing widespread defaults. There’s little risk of a bubble similar to the ones in the U.S. and U.K. in 2006 and 2007 occurring now because homebuilders and banks learned their lesson in the 1990s, said Carlos Hermosillo, an analyst at Mexico City-based brokerage Vector Casa de Bolsa SA who covers 12 homebuilders and infrastructure companies.
At the end of 2009, Mexico had a housing shortage of 8.9 million units, according to the latest report from the agency in charge of developing Mexico’s mortgage market, Sociedad Hipotecaria Federal. The figure is the broadest measure of housing needs and includes families without a residence as well as those living in homes that are overcrowded or in ill-repair.
In the U.S., the number of contracts to buy previously owned homes plunged 30 percent in May from the prior month, the biggest decline in records dating to 2001, the National Association of Realtors said July 1. A collapse in the subprime mortgage industry, as well as reduced consumer confidence, has weakened demand for real estate.
Jorge Alberto Moreno, a Mexico City resident who was hired last year by Samsung Electronics Co., said the economic rebound is providing him with security. He plans to purchase a new home with his wife and son in the next year.
“We’re leaving the crisis behind and the situation is a bit more stable,” said Moreno, 32, who works in Samsung’s marketing department. “This gives us more confidence to make these kinds of decisions that you wouldn’t make otherwise.”
Mexico economy June 2010
Situation Unchanged: Growth still driven by exports
The Mexican economy has remained unchanged in terms of its main drivers. Growth relies essentially on exports, fueled mostly by a warming US economy, its main importer, but also likely to be helped by a weaker Peso after the strong devaluation in May. Local demand continues to show signs of recovery, but is currently insufficient to support economic growth by itself. This scenario is a continuation of the few past months and we believe it is likely to remain in June.
For the above reasons, we made only minor changes to our suggested portfolio for June. The only modifications were including Cemex, increasing the weight of Geo (from 5 to 10%) and withdrawing Ica and Mexchem.
Exports to the US account for roughly 80% of Mexico’s total exports. This engine, which is driving Mexico’s economic growth, is likely to continue speeding up, as the FED recently revised its estimate for GDP growth upwards. While this dependency on the North American economy might eventually pose a strategic weakness to the Mexican economy, it is a very positive feature for the moment. The eye of the world’s economic storm continues centered in Europe (more specifically in the euro zone), which accounts for only 5% of Mexican exports. Because of their minimal interaction in that region, Mexico’s economy and financial market have not suffered from the latest fears regarding the countries in the euro zone.
After an almost constant appreciation of the Mexican Peso against the USD in 2010 until April, in May the peso was very volatile, with losses of 5.7%. However, the trend toward appreciation will resume for the rest of the year, supported by inflows coming from the US, especially into the fixed income market. We expect the Peso to close at 12.00 versus the USD. This inflow from the US has played a positive role in the recovery of the Mexican economy, as local activity has already started to pick up although, so far, only in isolated segments. Transport, commerce and media are a few examples of segments that are either strong (in the case of the first two) or never suffered at all. The rest of the internal demand may recover by the second half of the year, as recent labor figures have been positive.
Because of the improved economic activity, the OECD (Organization for Economic Cooperation and Development) has recently increased its forecast for world GDP growth, including a revised 4.5% (from 2.7%) growth for Mexico. We have also revised our own estimate upward to 4.4%, from a previous 4.1%, the same as the median figure expected by market consensus. Inflation in June was down to 3.9%, temporarily helping the course of recovery, as full year inflation expectations remain at 4.9%