Economic Recovery in The Americas; Mexico Evolves

Last Thursday, I attended a briefing by Doctor Federico Rubli, Director of External Relations for Banco de Mexico, hosted by San Diego Regional Chamber of Commerce. Since Banco de Mexico is Mexico’s Central Bank, the equivalent to the US Federal Reserve, it was a privilege for me to hear him speak in such a casual, friendly setting.

Dr. Rubli shared Banco de Mexico and other global economic forecasts indicating that Latin America shows signs of more rapid and thorough market recovery than do the US and the EU. As our nation plots its course to economic recovery through export growth, exporting companies would do well to focus on Latin America.

Highlights
The International Monetary Fund estimates the worldwide constriction of trade of around 9-10% is far worse than the drop in 1974 of 4%. The IMF notes a 2.4% constriction of United States GDP in 2009, while expecting an expansion 3.3%. by close of 2010. As Dr. Rubli noted, that’s remarkable, given the construction crash and housing financing implosion.

Things have been bad all over Latin America, too. Mexico is coming out of its worst recession in about 40 years. But, growth trends for 2010 are set at 4-5% in Mexico — on a par with the US — and as high as 7% in Brazil.

EU
By comparison, the EU’s situation is grave. Unemployment, while at about 10% in the US, ranges from 7 to 20% (Spain) Among EU nations, the so-called PIIGS (Portugal, Ireland, Italy, Greece, and Spain) have swamped the European Central Bank’s debt-to-GDP ratios.

Central banks in Germany and France, even while struggling with their own nations’ downturn, are holding the bag on about 50% of PIIGS-based debt exposure … totaling $3 trillion. To say “it’s the EU’s problem” is a mammoth understatement.

The Maastricht Criteria defines acceptable levels of debt as no more than 60% of GDP and of Deficit as no more than 3% of GDP. By comparison, Greece’s current ratio of Debt-to-GDP stands at 140%.

In fact, well under ten nations in the world can quality at this date… and the list certainly does not include the US. Even though our nation’s ratio will likely stand at 100%, at least it’s the third-lowest measure among all G8 member nations (Canada, France, Germany, Italy, Japan, Russia, United Kingdom and USA) Latin America as a region averages 35%. Another reason to watch it for fast economic recovery and opening markets.

Mexico
As noted, Banco de Mexico projects a 4-5% increase (also verified by independent polls), as initially forecast last December.

During 2010, retail sales are trending upward ~4.5% January-to-June 2010, and total family remittances sent from guest workers in the US are recovering from the US construction sector slump. Despite Mexico’s well-capitalized banking system (with rates above the international norm of 8%), consumer and private industry credit remains scarce, which, as in the US, is a main growth limiter.

Petroleum revenues still comprise a third of the nation’s public sector, therefore Banco de Mexico advocates privatization of key infrastructure sectors, as part of overall growth by external (private) sectors.

Our session was shifted to a very small conference room, due to the last-minute appearance by Governor Schwarzenegger, in town to rally the troops toward California’s economic recovery. Judging from the long faces of the Governor’s audience as they emerged from their larger, more spacious room, I think we heard far better news from Dr. Rubli and the Bank of Mexico! Go figure…

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