Mexico July 2006

Mexican GDP is forecast at 4.1 percent in 2006, up from a 3.0 percent reading in 2005, according to Ideaglobal. A post hurricane construction boom is one factor supporting the jump in GDP. The strong price of commodities, including oil, coal, gold, and silver, has also supported Mexican growth.

Huge flows of “family remittance” or money sent home to Mexico from Mexicans working abroad (primarily in the U.S.) has also supported the domestic economy there.

According to Bertrand Delgado, economist at Ideaglobal, that number totaled $20 billion in 2005 and has been increasing.

Ideaglobal predicts that the U.S. dollar/Mexican peso rate (USD/MXN), which was around 11.42 in mid-June, will move to 11.25 by year-end, supported by positive fundamentals. Coutino expects depreciation to the 11.50 level. It shows the Mexican peso futures (MP) contract, which indicates the peso’s hard sell-off in 2006. The outcome of the Mexican presidential election on July 2 was unknown at press time, but analysts expect some movement in the peso in the wake of the results. The markets presumably favor a win by the conservative Felipe Calderon, the ruling NationalAction Party (PAN’s) candidate. He was in a virtual dead heat in recent polls in late June with Andres Manuel Lopez Obrador, the leftist candidate from the Democratic Revolution Party (PRD).

“There is a fairly sharp distinction between the two leading candidates,” says Bank of America’s Estebanez. He speculates an Obrador win could spark knee-jerk weakness in the peso toward the 11.70 area, while a Calderon win could open the door for a small “relief rally.”