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Mexico to Follow US Expectations – August 2010- IXE BANIF – Monthly Analysis

Indications of a slowdown in US growth

Expectations of pick-up in the US economy for 2010 have cooled down recently. The most recent statements of the FED’s President suggested that a recovery in the US will happen only in the medium or long-term. This is a worsening of an already declining expectation for the US economy that started in June, and that we did not incorporate into our scenario at the time.

Until June, nearly everyone’s attention was concentrated on the Euro zone, with fears for the bankruptcy of local banks. These fears faded as the results of a stress test made with a sample of banks showed that very few names were in trouble. The spotlight then turned to the stronger indications of a weakness in the US economy.

Mexico – Monthly Allocation – August 2010

Mexico likely to adapt to new scenario

The Mexican economy continues to depend on its neighbor for exports, as it accounts for most of the demand for its products. With the growing expectation of a reduction in US growth, we believe that the local Mexican economy will tend to migrate from a manufacturing profile (based on exports) to a consumption profile (based on local demand).

While we believe that slower growth of the US economy is not good, we believe that the pace reduction observed so far is still consistent with our current and unchanged expectation for Mexican 2010 GDP growth of 4.4%. We believe that we were in the lower end of the market range, and now believe that others will adjust their expectations downward. In this way, we should move closer to the upper limit of the range of expectations. One indicator on the local economy that we highlight is internal wholesales, which we believe reached its peak at 7% in June (YoY growth, 6.9% in May) and is likely to slow down during the rest of the year. We expect internal wholesales to reach 3.9% for the entire 2010, taking into consideration the negative figures of the first two months of the year. Internal retail sales are now following the wholesales’ trend as an indication that retail companies are reducing inventories. We also expect July figures, when announced, to indicate a reversion of the local deflation observed in the April-June period.

For August, we have added Geo and Chedraui to our suggested portfolio and have withdrawn Asur, Autlan and Urbi.

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Filed under: Banking, BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , ,

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