Weekly Report - 19 August 2003

ECONOMY | Industry flattens QII growth. The virtual stagnation of economic growth in the second quarter was largely the result of three consecutive months of declining industrial output - itself reflecting poor US demand for Mexican industrial goods. In the first quarter, industrial output expanded by only 1.8%, way behind the 5.9% recorded in construction and a point below the 2.8% recorded for the services - the two sectors that have been left carrying what growth there was in QII. 

The second-quarter result is likely to lead the government to lower its growth forecast for this year from 3% to 2.1%. 

INVESTMENT | Foreign holdings in Bolsa up 17%. Foreign investment in the Bolsa Mexicana de Valores (BMV) and ADRs in the first eight months of the year reached US$53.8bn, 16.99% above the level at end-2002. The increase in July was 3.6%; sign of a tailing-off. Variable-yield holdings in July accounted for 99% of the total, and were up 15.9% on the same month last year. Investment in ADRs, 61% of the total, was up 14.2% in the year. 

WATER | Texas cutoff threat dismissed. Federal officials in Washington dismissed last week's threat by Texas governor Rick Perry to push for a cutoff of Mexico's water supply if it did not bring its water debt up to date. Mexico currently owes the US 1.4m acre-feet of water from the shared Bravo (Grande) and Colorado rivers (an acre-foot measuring the amount needed to flood an acre one foot deep). Even if the federal government were to take Perry up on this, officials say, there is no practical means of cutting off the water, at least not immediately. Some weeks ago, Mexico's foreign ministry said that Mexico would honour its water debt commitments for this year and the next, and begin to pay off the backlog.