How will the Vicious Circle Mexican Economy which is wrapped?

How will the Mexican economy from the vicious circle in which is involved? Buenos Aires, Argentina February 26, 2009 The U.S. crisis has caused a domino effect on Mexico's economy that fails to reverse the downward trend of its activity. For if they were few problems facing the Mexican economy, they are mutually reinforcing, aggravating the situation. Unemployment in Mexico and continues to increase and reached its highest level in the last eight years. The unemployment rate now stands at 4.84% of the economically active population (PEA), which means that 2,260,000 people have no formal employment (415,800 more than a year ago). The outlook for the labor market in Mexico are anything but positive by the confluence of multiple factors. The crisis that the U.S. economy is suffering along with tightening of immigration policies of that country, are generating a large number of Mexicans return to the country thus swelling the number of unemployed. Another phenomenon that is affecting the Mexican labor market is the increasing population of working age. With higher unemployment and increased risk of job loss for those who have it, the household consumption has been rolled back significantly, much more on durable goods.

Companies also have limited their investment projects. The worst situation facing both families and businesses has impacted the quality of credit portfolio of banks. The delinquency rate of the loan portfolio of banks in Mexico amounted to 3.36% in January (December 2008 amounted to 3.21%). The consumer lending segment saw an increase in delinquencies reaching 8.31% of the total portfolio. The external environment has affected the status of Mexican companies. The observed sharp drop in exports meant a sharp drop in revenue from businesses that can not easily support.

The external accounts have been significantly affected by the crisis. The deteriorating trade balance and non-factor services was added the fall in remittances. In 2008, Mexico experienced a drop in remittances of 3.8% compared to the volume received in 2007, totaling U.S. $ 25,145 million. The outlook for this year anticipate continuous reduction in the volume of the same. So in 2008, Mexico suffered an increase in the external deficit. The current account deficit reached 1.4% of GDP by accumulating a U.S. $ 15,527 Red million. Positive development as far as regards the external accounts is provided by the reduction of 11.7% in the month the trade deficit January over the same month in 2008. The reduction in the trade deficit responds to a drop in the volume of external trade in Mexico. Exports fell by 31.5% while imports grew by 30%. The increased current account deficit coupled with expansionary monetary policy affects the exchange market causing the depreciation of the Mexican currency. Thus, since August 2008, the Mexican peso has lost a third of its value.

Towards the end of August 2008, the dollar traded at $ 10.28 Mexico. Currently he makes $ 14.93 and the market is speculating on the continuity of depreciation. Given the continued weakening of the risky rate, the Bank of Mexico has come to intervene in the currency market in order to prop up the value of the peso. This has represented a significant loss of international reserves. International reserves of the Bank of Mexico have dropped to U.S. $ 80,933 and so far this year, they recorded a low of U.S. $ 4,508 million. The weakening of the peso has not only caused the need for intervention and the consequent Banxico drop in the level of international reserves. It has also increased the risk of inflation. While the inflation rate recorded a decline retailer is not the same thing is happening with core inflation. While consumer price inflation slowed to 6.25% during the first half of February, the inflation rate accelerated year reaching 5.81%, compared to the previous level of 5.76%, while the level reached in the largest more than seven years (and of course, above the target of the Bank of Mexico located in the 3%). According to the view expressed by Reuters Luis Flores, an analyst at IXE Grupo Financiero: "The exchange rate remains the determinant relevant to local inflation and, consequently, for monetary policy. "inflation risk together with the weakening currency factors are limited to monetary policy.

A report of IXE Grupo Financiero said about expectations for the evolution of monetary policy: "We expect the Bank of Mexico to continue cutting rates to 6.50% by the end of 2009, but his approach could become more cautious and dependent volatility in the peso / dollar, "said Ixe in a separate report. Currently the benchmark interest rate is at 7.5%, after the cut made by Banxico last Friday. In the statement where the reported rate cut Banxico warned of inflation risks in exchange rate volatility product. There is little doubt that the Mexican economy is undergoing a vicious circle which will not be easy to leave. Probably the government of Mexico should expand its economic stimulus plan to prevent further deepening deterioration in the economy. The recovery of the economy is increasingly dependent on the ability of recovery the U.S. economy may experience. It is for this reason to expect that the tradable goods sector will be one of the first sectors to achieve the recovery when it occurs (probably not before the end of 2009).

We will have to monitor firms producing tradable goods to identify those with the greatest potential for recovery and expansion.