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07 December 2010

Montufar-Helu & Griotti Consulting. 07 December 2010. Report to the Commissions on Industrial Development and Economic Development Senate of the Mexican Republic. On behalf of the Ass. of Mexican Manufacturers. Agenda. Background: the Mexican economy The two threats: China and the crisis

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07 December 2010

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  1. Montufar-Helu & Griotti Consulting 07 December 2010 Report to the Commissions on Industrial Development and Economic DevelopmentSenate of the Mexican Republic • On behalf of the Ass. of Mexican Manufacturers

  2. Agenda • Background: the Mexican economy • The two threats: China and the crisis • Recommendation: lower interest rates • Responding to alternatives and criticisms

  3. Background: the Mexican economy • Mexican economy is highly reliant on exports • Our major export market is the US

  4. The two threats: China and the crisis • China displaced Mexico as the US’ second largest trading partner • As a result of the crisis, Mexican GDP fell by 7% in 2009 • Mainly driven by fall in exports Mexican exports ($ BN) 293 -18% 240 2008 2009

  5. A fragile recovery • In 2010 exports bounced back… • GDP estimate: + 3 or 4 % • …thanks to a 25% fall in the value of the peso against the dollar

  6. Recommendation for avoiding a double dip • Further devaluation of the peso leading to an increase in exports to the the US • Objective is to gain back second place from China • Reduce unemployment which has reached a high point of 6% • Improves the governments’ chances of obtaining reelection in 2012 • Recommendation: the Commissions on Industrial Development and Economic Development should pressure Mexico’s Central Bank into lowering the interest rate from 4.5% to 4%.

  7. Responding to alternatives and criticism • Alternative: pegging the peso to the dollar • Implies restricting capital flow and therefore reduces FDI • Criticism: low interest rate will increase inflation • Inflation is low at 3.6% (down from 5% in 2009) • Criticism: pressures on the Central Bank damage its independence • This is a price worth paying to ensure economic recovery • All governments influence their Central Bank

  8. THANK YOU

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