Mexican Economic Activity Up as Currency Continues Slide

| Sept. 29, 2011 |

Published by Minyanville

Newly released economic activity figures from July show a rapid rise, spurred on by Mexico’s agriculture sector. Economic activity was up 0.88% in July from the previous month, nearly triple analysts’ median forecast in a Reuters poll which predicted just 0.33%. The figure was 3.7% higher than the same period in 2010, slightly lower than the 3.8% median estimate by Dow Jones. However, the month’s figures will please many after June’s disappointing 0.19% contraction.

Oil production in August was also up to 2.55m barrels per day, however, this is much lower than the 3.4m barrels per day the country’s output peaked at in 2004, notes Adam Thomson writing in the Financial Times. “Mexico has one of the most restricted and anachronistic energy-sector regimes in the world—even more so than that of Cuba,” he writes. This has resulted in minimal investment and a “dearth of exploration,” resulting in many missed opportunities.

International reserves were up to $136.5 billion last week, registering a net increase of $378m after a $380m decline the previous week. Reserves have risen 20.1% this year.

The economy did grow 3.9% in the first half of 2011, with the government predicting the year to end at 4%, with 2012 predictions around 3.5% growth. The country’s peso continues to slide, though has gained from last week’s 14 to the USD to around 13.3810 per USD on Wednesday. Still, this adds up to a 7.7% drop this year alone or 11% over the last month.

This is primarily down to the European debt crisis hitting Mexico hard, as investors lack confidence in its leaders. Many are wondering whether it’s not time for the country’s Central Bank to step in. Nomura’s Benito Berber believes that authorities will intervene either as part of a coordinated G20 plan, if the peso weakens substantially more than other emerging market currencies or if other Latin American banks begin to intervene.

Mexican authorities, claims Berber, are reluctant to intervene. “They have worked hard to foster deep [foreign exchange] hedging markets and believe strongly in the model of a truly flexible exchange rate,” the strategist wrote. “Other than Chile, Mexico is the only Latin American country that really believes in the advantages of a floating regime. Intervention is considered a tool of last resort.”

Drug War
The country’s war on drugs is making international headlines once again, though perhaps solely as editors flock to the story as popular social-networking site Twitter gets a namecheck. As journalists in Mexico steer clear of open and honest reporting of the drug war, for justified fear of reprisal, anonymous locals are taking charge, posting messages on Twitter revealing locations of murders and—more dangerously—encouragement to turn those guilty over to the police. This has led to a number of murders, bodies left with notes alongside them warning that they had been killed for those actions.

Eight journalists have been murdered in Mexico this year alone, according to the country’s Human Rights Commission. The war on the cartels has been a term-long headache for President Felipe Calderón since he took the helm in December 2006. It is likely to lead to the opposition National Action Party (PAN) taking over the country in elections next year, as many are dismayed by the huge rise in deaths over the last five years.

In Brief

Mexico will not be raising its sugar import quota this year, as the government believes there is enough supply to cover domestic demand. The 150,000-ton quota was brought in earlier this year. There were rumors in August that the government would be doubling the quota in order to stabilize prices. However, prices are falling and so the need for the doubling has disappeared, claims Lorenza Martinez, the Deputy Economy Minister, speaking to Reuters.

World’s richest man Carlos Slim’s son Marco Antonio Slim Domit is to join the board of directors of Blackrock (BLK), the world’s biggest money manager which oversees $3.66 trillion in assets. Slim acquired shares in the company last year.