Weekly Report - 30 March 2004

GROWTH OUTLOOK | Mining & farming lead uptick. Economic activity in Mexico in January was running 2.1% higher than a year earlier, according to the IGAE index, which foreshadows GDP data. This is being heralded as a very encouraging sign, after the mere 1.3% growth recorded in 2003 as a whole. The government has set itself a growth target of 3.1% for this year.

In January the highest sectoral year-on-year growth was recorded by mining (6%), followed by agriculture (4.2%) and construction (3%). Manufacturing was down by 0.1%.

INFLATION & MONEY | Bank sounds optimistic, but remains tight. Mexico's central bank says that the inflation outlook was not worsened in spite of pressures that took the annual rate in the first two months of the year to 4.3%. This, it says, will only have a `transitory effect' and the trend will turn downward in the next few months. Nonetheless, it also said that it would keep the supply of credit to the financial institutions unchanged -- that is, tight.

REMITTANCES | Influx slows down. Remittances by expatriates in the US in January totalled US$941m, only 1.5% more than a year earlier. Last year remittances rose to US$13.37bn, which made them Mexico's second-largest source of hard currency (after oil). Officials had predicted that this year the inflow would increase to about US$15bn.

FISCAL OUTLOOK | States warned of imbalance. The finance ministry has warned the state governments to moderate their demands for a greater share of federal tax revenues, arguing that the situation is already very unbalanced. It noted that the states and municipalities account for only 7.7% of tax receipts, but receive, in the form of transfers from the federal government, 45.1% of the total. The state and federal governments are discussing fiscal reform at the Convención Nacional Hacendaria, a rarely convened forum which is expected to come up with conclusions in six months' time.