Investment

The gross fixed investment (GFI) figures for December were published today, ten weeks after the year ended. GFI rose a less than impressive 2.3% last year. While GDP (in current pesos) might have recovered its 2008 by the final quarter of 2100, GFI certainly wasn't driving the recovery: GFI dropped 10.1% in 2009.

GFI in machinery and equipment rose 4.3% last year, After plunging 18.7% in 2009, GFI in nationally-produced machinery and equipment climbed 13.3%, its fastest growth rate in seven years. Imported machinery and equipment inched up a mere 0.8% in 2010 after plummeting 22.0% in 2009. It will be interesting to see if this is a one-time effect or presages a switch in sourcing. Construction

Will the Fed put an end to monetary stimulus this year?

The Mexican government doesn't think so, if the wording in the statement issued on June 23 by the Council on Financial Stability (CESF, comprised of Hacienda, Banco de Mexico, the CNBV, the Insurance Commission, the Consar and the IPAB -- in short, the financial regulators) is any guide. The CESF does not expect the Fed to "retire the monetary stimulus before the beginning of 2012".

The consequences are interesting: "therefore, the risk that capital flows to emerging markets will revert when US monetary policy is normalized has diminished. Nonetheless, risk persists due to the financing needs or renewed volatility caused by the fiscal problems of developed countries." In other words, we're not out of the woods yet.

Risks to Mexico's banking sector

When the official body charged with assessing the stability of Mexico's financial system (Consejo de Estabilidad del Sistema Financiero) issued its first report yesterday, it gave Mexico's financial system a clean bill of health. The Council (CESF) is presided over by Hacienda and its members include Banco de Mexico, the CNBV (National Banking and Securities Commission), the CNSF (National Insurance and Bond Commission), the Consar (National Commission for Retirement Savings), and the IPAB (Institute for the Protection of Savings in Banks).

The CESF, the latest in the string of anacronyms overseeing the financial system, did observe that "an abrupt reversion of capital flows toward Mexico" could have have "unfavorable impact" but that it would be limited, thanks to actions taken by the government in recent years. The CESF also stated that "the Mexican economy has been capable of absorbing in an orderly manner the elevated capital inflows it has received recently and without generating distortions in the principal financial variables". The CESF goes on to assure us that "(T)he underlying conditions of the Mexican economy are solid and growth perspectives, favorable."

Finally, the CESF concludes that although "the indebtedness of states and municipalities does not presently represent an important problem for Mexico's financial system, it is necessary to generate adequate incentives to improve transparency and promote prudent fiscal policies by states and municipalities." Amen.

Investment

The gross fixed investment (GFI) figures for December were published today, ten weeks after the year ended. GFI rose a less than impressive 2.3% last year. While GDP (in current pesos) might have recovered its 2008 by the final quarter of 2100, GFI certainly wasn't driving the recovery: GFI dropped 10.1% in 2009.

GFI in machinery and equipment began to recover from its 21.0% plunge in 2009, rising 4.3% last year. Construction, the other main component of GFI, gained 1.2% in 2010, after falling 2.3% in 2009.

GFI in nationally-produced machinery and equipment climbed 13.3% in 2010, its fastest growth rate in seven years; in 2009, it dropped 18.7%. Imported machinery and equipment inched up a mere 0.8% in 2010 after plummeting 22.0% in 2009. It will be interesting to see if this is a one-time effect or presages a switch in sourcing.

Interview with Ambassador Davidow

On Tuesday I gave a "Tequila Talk" at the Institute of the Americas. (Yes, they did serve tequila.) To see the interview, just click on the following link:

http://www.iamericas.org/en/ioa-videos/Tequila-Talk-with-Deborah-Riner/0/35/1

Food for thought on the strength of the peso...

Foreign investment in peso-denominated money market obligations jumped US$12.23 billion in the first nine months of this year. Those volatile capital inflows were the equivalent of ¾ of remittances in the same period, 85% of direct foreign investment, and 55% of crude oil export revenues. Portfolio investment can leave as easily as it comes into a country. If the European authorities do not succeed in containing the Europe-centered financial crisis and there were to be a resurgence of risk aversion on the scale of the six months between October 2008 and March 2009…

Where the elderly in the US get their income...

The numbers speak for themselves... (Source: http://krugman.blogs.nytimes.com/?nl=todaysheadlines&emc=a212)