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Economic report February 2007 (Figure 1) I. Real GDP growth, quarterly REAL SECTOR (Annual percent change) • The Mexican economy grew 4.8% in 2006 Mexico’s Gross Domestic Product (GDP) grew 4.3% in the last quarter of 2006. During 2006 real GDP grew 4.8%. Seasonally adjusted rates showed that GDP rose 0.47% in the fourth quarter of 2006 with respect to the previous quarter. (INEGI) • Industrial production expanded at a solid pace in 2006 Industrial production increased 1.6% annual in December 2006. In 2006 industrial production was 5% higher than its level of 2005. In December 2006 the manufacturing output rose 0.9%, construction 4.3% and utilities 5.7%, mining decreased 3.1%, all at annual rates. Seasonally adjusted rates displayed a decline in industrial production of 0.47% in December from November. (INEGI) • Unemployment rate rose slightly during the last quarter of 2006 Unemployment rate reached 3.6% during the fourth quarter of 2006, a higher level compared to the 3.1% of the last quarter of 2005. Seasonally adjusted rates displayed a rise of 0.47% in the last quarter of 2006 with respect to previous quarter. The Economically Active Population was 44.4 millions in the fourth quarter of 2006, approximately 59% of the 14 years and over population; 96.4% had a job, and from this group 26.6% was working in the informal sector. (INEGI) Source: INEGI (Figure 2) Industrial production (Annual percent change, 6-month moving average) Source: INEGI (Figure 3) Unemployment rate (Percentage of Economically Active Population) Source: INEGI (Figure 4) Total workers in the IMSS (Annual percent change, 2006-2007) • The employment rose in January 2007 The number of permanent and eventual urban workers affiliated to the Public Social Security Institution (IMSS) increased by 1,433 at January 31, 2007, to reach 13,967,001. Between January 31, 2006 and January 31, 2007 total employment increased by 865,595, an increase of 6.6%. (STPS) Source: STPS Unit of Economic Relations and International Cooperation Dirección General de Relaciones Económicas Bilaterales 1 Economic report February 2007 (Figure 5) Retail Trade • Wholesale and retail sales increased during January 2007 The wholesales, employment and real average earnings increased 3.1%, 0.5% and 2.4%, in that order, from December 2005 to December 2006. Retail sales, employment, and real average earnings rose 1.3%, 2.6% and 2.7%, respectively, in December 2006 with respect to the same period of 2005. II. FINANCIAL SECTOR December of each year (Annual percent change) Source: INEGI (Figure 6) • The consumer price index rose in January 2007 The inflation reached 0.52% in January 2007, according to the Mexican Central Bank. The annual inflation in January was 3.98%, 0.07% lower than in January 2006. Core inflation and no-core inflation reached 0.50% and 0.54% in January 2007. In annual terms these price indexes rose 3.89% and 4.17%, respectively. (Banxico) Annual Inflation (Annual percent change, CPI, core inflation and no-core-inflation) Source: Banxico (Figure 7) • The interest rate of Mexican Treasury Bills (Cetes) 28 days were unchanged The Mexican Treasury Bills yields (Cetes yields) with maturity of 28 and 91 days were unchanged in the February 20, 2007 primary market auction. The 171 days Cetes yield rose 1 point, to attain 7.27 percent. The 3 years Government Bond interest rate fell 23 base points, to reach 7.47%. (Banxico) Primary market auction: Cetes 28 days Weekly auctions Source: Banxico (Figure 8) Exchange rate peso/dollar 2006-2007 • The exchange rate displayed a slightly rise The Mexican peso exchange rate reached 11.05 pesos per dollar (ppd) in February 23, reflecting a 5.53 cents increase from the previous Friday level. During 2007 the exchange rate has averaged 10.96 ppd, displaying a depreciation of 24.47 cents. (Infosel) Source: Infosel Unit of Economic Relations and International Cooperation Dirección General de Relaciones Económicas Bilaterales 2 Economic report February 2007 (Figure 9) Country risk • Mexico’s country risk showed a slightly increase Mexico’s country risk, measure by J.P. Morgan’s EMBI+ Index, increased 2 base points (bp) in February 23 with respect to the previous week, reaching 105 bp. On the other hand, Argentina’s country risk declined 2 pb, reaching 208 bp, and Brazil’s country risk fell 2 bp to locate at 180 pb. (JP Morgan e Infosel) • International reserves grew Mexico’s international reserves grew by 435 million dollars (md) in February 23, 2007 with respect to their level at February 9, 2007, reaching 68,650 md. During 2007 international reserves have raised 970 md. (Banxico) • The Mexican stock market displays a growing path The Mexican Stock Market Index (IPyC) rose 0.05 percent in February 23, reaching 28,505.72 points. The IPyC showed a cumulative profit of 7.78% in Mexican pesos and 5.55% in US dollars with respect to the end of 2006. (BMV) 2006-2007 Source: EMBI+, J.P. Morgan e Infosel (Figure 10) International Reserves At the end of each year, Billions of Dollars Source: Banxico (Figure 11) Mexican Stock Market Index Points III. EXTERNAL SECTOR • Narrow deficit of trade balance during January 2007 The trade balance deficit reached 1,709 million dollars (md) in January 2007. The trade deficit was driven by a fall in motor vehicle exports, and a narrowing surplus in the petroleum trade balance. Total exports attained 18,989 md, 1.1% lower than in January 2006. Non-oil exports increased 43%, and oil exports decreased 25.7%. Imports rose 11.8%, to reach 20,698 md. Consumer goods imports increased 23.3%, capital goods imports raised 11% and intermediate goods imports augmented 9.9%. Source: BMV (Figure 12) Trade Balance January of each Year (million dollars) Source: INEGI Unit of Economic Relations and International Cooperation Dirección General de Relaciones Económicas Bilaterales 3 Economic report February 2007 (Figure 13) Foreign Direct Investment Billions of Dollars • The FDI flows decreased modestly in 2006 The Foreign Direct Investment (FDI) attracted by Mexico reached 18,938 md in 2006, 3.6% lower than the level observed in 2005. (Banxico) • The current account balance registered a small deficit in 2006 The current account balance displayed a deficit of 1,475 md in 2006, 0.2% of GDP. This figure was below the percentage registered in 2005 (0.6% of GDP). This small deficit was the result of an increase of the petroleum trade surplus and inflows received by Mexican workers abroad (remittances). Banxico • Workers’ remittances increased in 2006 Remittances from Mexican workers in other countries (mainly U.S.A.) reached 1,758 md in December 2006, 0.1% higher than the flows registered in December 2005. Remittances reached 23,054 md in 2006, an annual increase of 15.1%. The number of transactions in December 2006 was 5.3 millions, 1% higher than the level recorded in December 2005. The average amount in each transaction was 334.5 dollars. (Banxico) • Oil prices increase The price of the Mexican oil mix was 48.98 dollars per barrel (dpb) at February 23, increasing 2.81% from the level of February 16; the futures for April for West Texas Intermediate (WTI) and Brent in the derivatives market were 61.14 and 60.88 dpb, respectively, raising 2.95% and 5.02% from the February 16 figures. During 2007 the price of Mexican oil mix reached a cumulative variation of 0.66% and an average level of 45.19 dpb. (Pemex and Infosel). Source: Banxico (Figure 14) Current Account Balance Source: Banxico (Figure 15) Remittances December of each year Millions of Dollars Source: Banxico (Figure 16) Oli Prices Dollars per barrel, 2006-2007 Source: Pemex and Infosel Unit of Economic Relations and International Cooperation Dirección General de Relaciones Económicas Bilaterales 4 Economic report February 2007 IV. OUTLOOK • A lower inflation in 2007 is expected Banamex-Citigroup.- According to the Outlook Survey of Financial Markets Analysts, the inflation at the end of 2007 could reach 3.67%, (higher than their previous forecasts of 3.54%). However, in the last survey the inflation forecast was 3.7%. The core inflation in 2007 will be 3.55%, this level is lower than the 3.59% surveyed in the previous month. • The US economy will grow near 3.1% in 2007 Banamex-Citigroup.- The Federal Reserve (FED) projects a US GDP growth between 2.5% and 3% in 2007 and among 2.75% and 3% in 2008. Banamex-Citigroup projections are higher than these figures: 3.1% in 2007 and 3.3% in 2008. • US Federal Funds rate will reach 5% by the end of 2008 Banamex-Citigroup.- The federal funds interest rate could reach 5% by the end of 2008, driven by an expected higher economic growth. In this year, the odds of keeping without change the federal funds interest rate is growing, even tough there is a chance that the rate could decrease from 5.25% to 5% by the end of the third quarter. Unit of Economic Relations and International Cooperation Dirección General de Relaciones Económicas Bilaterales 5