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Mexico: What sector could drive growth? – Wells Fargo

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 7, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Córdoba) - Eugenio J. Aleman, Senior Economist at Wells Fargo, notes that the Mexican economy has been disappointing as reforms failed to convince foreign investors and concluded that the construction sector is one that has the potential to generate more investment and income.

    Key Quotes:

    “Mexican politicians as well as most analysts that follow the Mexican economy closely have been expecting a revival in economic growth in Mexico for some years. However, the economy has been disappointing them year-in, year-out.”

    “Reform measures that should have given rise to a revolution in the energy sector are looking more like another failed attempt to convince foreign investors of the seriousness of the Mexican reform process.”

    “Thus, absent a large effect on the economy by the energy reform, we look at what other sectors could drive economic growth in Mexico going forward. We conclude that the construction sector is one of the few sectors that has the potential to drive economic growth in the next several decades. The export sector will continue to generate and help growth in the future, but we believe that the construction sector has the potential to generate a higher rate of investment and personal income generation for the Mexican economy. This should help drive personal consumption expenditures (PCE) growth, which has remained constrained in recent years.”

    “The current depreciation of the Mexican peso, which has fallen almost 30 percent versus the U.S. dollar since May 2011, has not had the usual impact on Mexican consumer prices. This is a further demonstration that consumer demand has weakened considerably, to the point where it is limiting the effects of the depreciation of the peso on inflation.”

    “This also suggests that Mexican inflationary expectations have been successfully anchored, perhaps for the first time in history after a large depreciation of the currency. However, this is not a guarantee going forward so the Mexican central bank will need to be very careful and will need to monitor expectations very closely.”
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