Markets Disappointed on Mexico's Lower Than Expected Economic Growth, GDP

| May. 20, 2011 |

Published by Minyanville

The Mexican economy grew just 4.6% this first quarter of 2011, compared to the same period of 2010—below market expectations. GDP was up 0.52%, lower than the expected 0.8%, from the final quarter of 2010 in seasonally adjusted terms.

However, the news did not disappoint Benito Berber, an economist at Nomura. “Mexico remains an attractive story in its own right and is likely to grow by 3.5-4.0% over the coming years,” he says, putting this down to the country’s powerful manufacturing sector.

Industrial production was up 5.2% along with a 4.4% rise in services. Barclays Capital was a little more concerned: “Beyond the ebb and flow of quarterly releases, there will be a clear moderation in activity growth in 2011 relative to 2010,” they said.

The news also disappointed the markets, with the IPC index falling 0.2% on Thursday to 35,276 points, on 160.7m shares valued at $421m. The index has fallen around 9% in 2011 alone.

President Felipe Calderón has said that he expects growth to top 4.5% and “probably” hit 5% this year. “There is still much to be done in order to reach our growth potential,” he added.

America Movil
(AMX) shares were down 0.7%, Cemex (CX) down 0.6% and Walmart de Mexico (WMT) were down 0.3% on Thursday.

Carlos Slim's Companies Criticized

America Movil is owned by world’s richest man Carlos Slim. The colorful character’s companies have recently been plagued with regulator criticism of their monopolistic practices, with interconnection fees to different cellphone operators allegedly too high.

Mexican cable television and phone companies are currently working on lawsuits alongside regulators against Slim’s television companies, hoping to keep him out of the lucrative market.

They did similarly in 2006. Slim’s Telmex, which concentrates on fixed-lines, claims to have passed the tests put to it then. However, rivals are working hard to persuade regulators that this is not the case.

“We will not rest. In the coming weeks, you are going to see us move very hard on all these outstanding issues,” Ermilo Vazquez, head of regulatory matters for Axtel, a fixed-line competitor of Telmex, told Reuters.

Competitors claim that the interconnection fees—the cost to them of connecting to the Telmex network—are too high. Telmex hit back, however: “It would not matter if interconnection fees were zero," said Telmex lawyer Javier Mondragon. “They simply don't want us in the market because they are afraid of the efficiencies that we would bring.”

The row is ebbing and flowing in and out of Telmex’s favor and, at least in the eyes of the courts, is not the one-sided argument that rivals suggest. Just last week a Mexican court dismissed another fixed-line operator’s claim that the fees were too high, forcing Marcatel to pay $155m in retrospective interconnection fees.

Safe Travels?

Calderón was this week keen to reassure the travel industry of Mexico’s security situation. This comes after the US issued official travel warnings to its citizens heading to Mexico. “Mexico is a safe place to visit,” he told the audience at the Global Travel & Tourism Summit in Las Vegas this week. He admitted that there were problems but they were being dealt with.

Despite a number of cruise lines announcing the scale-back of trips to Mexico from California, Calderón insisted that Cozumel, on Mexico’s Caribbean coast, was the world’s top cruise-ship port. He also cited last year’s tourism figures of 23m visitors, up 6% from the previous year.

The US had warned spring breakers to steer clear of Mexico. Calderón quipped in response: “I saw thousands of spring breakers in Mexico having fun. My understanding is the only shots they received were tequila shots.”

Bono Sends "Message of Love"

Even U2’s Bono waded into the drug war this week as the Irish group played a huge show at Mexico City’s Aztec Stadium. Bono sent a “message of love along the border," though blamed the US for sending so many weapons south into Mexico.

“We don’t hear about all the automatic weapons that are being smuggled into Mexico from the United States. Nine thousands registered arms dealers on the other side of the border,” the front man said before launching into Pride (In the Name of Love). “We sing this for the innocents who have lost their lives in the violence here."