Killion-WEOC-Mexico_07 2010

Sector Outlook: How Will Mexico’s
Industries Fare in the Global Recovery?
Mark Killion, CFA
Managing Director, World Industry Group
IHS Global Insight
July 21, 2010

Copyright © 2009 IHS Global Insight. All Rights Reserved.
2
Outline of Presentation
• Themes Shaping the Outlook for Industries
• Rank Sectors by Their Growth Outlooks
• Mexico, U.S, and World
• Industry Impact in Mexico from Exports, Competitiveness
• Global Industry Growth Forecast for Key Countries:
• Electronics and Automotive, Aircraft and Shipbuilding
• Energy and Metals
• Construction and Related Materials, Wood, Paper, Chemicals
• Retail, Tourism and Leisure, Consumer Staples
• Telecommunications and Utilities
• Financials and Real Estate, Business and IT Services
• Public Administration, Defense and Education

3
-12
-7
-2
3
8
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Construction Manufacturing Services
-12
-7
-2
3
8
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
World TotalMexico
Delve into the Supply Side of Macro Economic Growth
Annual Growth Rate of Inflation Adjusted Value Added

4
Key Factors Affecting Pace of Sector Recovery
ü “De-synchronization”, Uneven Pace of Growth Across Countries & Industries:
Ø Emerging Asia outpacing rest of globe, Latin America faring well
Ø Europe faces slow growth due to fiscal drag and Euro zone issues
Ø The United States is in between… a vibrant technology sector and resurgent industry is leading a
recovery,but deteriorating public finances, credit-restrainedprivate sector and a further de-
leveraging of the household and financial sectors are a drag on growth
Ø Growth rates of “domestic” sectors reflect the country-based patterns… such as in Construction,
Real Estate and Consumer oriented industries
ü Balance sheet repair continues to reverberate in, and from, the financial sector
ü Manufacturing Rebound Began in late 2009 but has slowed in recent months
Ø Huge adjustment to the previously sharp declines: Commodities, Metals,Autos
Ø Electronics and Technology are leading drivers for growth
ü Impact from injections and withdrawals of economic stimulus programs
ü Roll out of infrastructure in emerging market countries such as in
Transportation, Communications and Utilities

5
Ranking of Sectors by Their Growth Outlooks

6
-8
-4
0
4
8
12
16
20
Oil&Gas
Industry
Metals&
Mining
Food&
Beverage
Chemicals
Industrial
Machinery
Autos
Aircraft
Electronics
Construction
Transportation
Serv.
Banking&
Finance
BusServices
PublicAdmin.
&Defense
2010 2011 2012
Sales Growth in Mexico for Key Sectors
Sector Sales Growth (Inflation Adjusted), Mexico
37.3

7
Profile of Mexico’s Export Sectors
5
23
4
16
13
10
2
9
7
16
21
20
3
12
3
16
17
17
0
5
10
15
20
25
Agriculture Energy
Mining
Textiles &
Apparel
Industrial
Machinery
&
Appliances
Electronics Motor
Vehicles &
Parts
1990 2000 2009
Distribution of Mexico’s Merchandise
(Goods) Exports 2009
Others
7%
Textiles &
Apparel
3%
Agriculture
3% Energy
Mining
12%
Metal Mining
1%
Food,
Beverages
& Tobacco
4%
Printing &
Publishing
3%
Mineral-
based
Products
1%
Chemicals
5%
Basic &
Fabricated
Metals
7%
Machinery,
Equipment,
Appliances
9%
Electrical
Industries
28%
Motor
Vehicles &
Parts
17%
Evolution of Sector Shares of Mexico’s
Exports from 1990, 2000 and 2009

8
Profile of Industry Competitiveness in Mexico:
Industry Winners
Comparative Advantage Index
Share in “All
Goods” Exports
Average Value of Comparative
Advantage Index
Industries are ranked by CAI *
(First is the Highest CAI) 1990 2009
1990-
2000
2000-
2006
2007-
2009
Recent
Change
1.Semiconductors, Circuit Boards, LCD 4.1 9.1 3.11 2.56 2.61
2. Beverages 0.8 1.2 1.59 2.01 2.12
3. Electric Industrial Machinery 3.7 4.0 1.98 1.88 1.94
4. Motor Vehicles and Parts 9.3 17.5 1.81 1.98 1.99
5. Machinery for Mining & Construction 1.0 1.4 2.44 2.90 2.69
6. Furniture 1.2 1.7 2.06 2.38 1.88
7. Receivers,Players,Sound, Systems,
Transmitters, Routers, Telephony 2.5 8.1 1.39 1.20 1.67
8. Medical & Measuring Equipment 1.3 3.8 1.38 1.55 1.68
9. Domestic Appliances 0.8 1.7 1.19 1.28 1.59
10. Medical, Precision and Optical 1.5 4.2 1.08 1.22 1.4
* Comparative Advantage Index: (Value of Mexico exports of good i divided by value of exports of All
Mexico goods) / (Value of World exports of good i divided by value of exports of All World goods)

9
Comparative Advantage Index
Share in “All
Goods” Exports
Average Value of Comparative
Advantage Index
Industries are Ranked by CAI *
(First is the Lowest CAI)
1990 2009
1990-
2000
2000-
2006
2006-
2009
Recent
Change
1. Shipbuilding 0.1 0.1 0.04 0.05 0.07
2. Aircraft and Spacecraft 0.1 0.2 0.05 0.03 0.09
3. Wood Products (Excl. Furniture), Paper
and Pulp
0.8 0.6 0.26 0.27 0.28
4. Pharma: Drugs and Medicines 0.3 0.6 0.24 0.23 0.19
5. Basic Chemicals and Fertilizers 2.4 1.4 0.45 0.35 0.39
6. Specialty Chemicals (excl. Pharma) 1.8 2.5 0.49 0.46 0.51
7. Food Products 2.7 1.9 0.44 0.41 0.47
8. Textiles 1.0 0.7 0.58 0.62 0.55
9. Mineral-based Products (excl. Glass) 0.6 0.5 0.69 0.72 0.60
10. Basic Metals and Fabricated Metals 6.2 5.9 0.7 0.7 0.68
Profile of Industry Competitiveness in Mexico:
Industry Losers
* Comparative Advantage Index: (Value of Mexico exports of good i divided by value of exports of All
Mexico goods) / (Value of World exports of good i divided by value of exports of All World goods)

10
Global Outlook for Growth in Electronics & Automotives
0
5
10
15
20
25
China
Taiwan
Japan
U.S.
India
Mexico
Indonesia
S.Korea
M.East
Malaysia
Thailand
Brazil
Russia
Australia
Africa
EMU
World
Computers & Communication Electronics Motor Vehicles
Forecast Growth in Real Sales (2010–11 CAGR)
ü Autos growth rebounding in US,
Japan and Russia but output
remains below pre-recession highs
ü Chinese autos growth set to
decelerate in 2011-2012 after
withdrawal of stimulus and
incentives
ü Electronics recovery is more widely
dispersed and fundamentally based
ü Technology and electronics have
already regained most of their
former high water marks
ü Strong connection with Software
and Communications sectors
ü Mexico achieved recent gains in
comparative advantage in
Electronics and Autos, stemming a
long decline

11
Global Outlook for Growth in Aircraft and Shipbuilding
0
2
4
6
8
10
12
India
China
Thailand
Taiwan
Brazil
S.Korea
Malaysia
Mexico
Indonesia
Singapore
Russia
EMU
M.East
Australia
Japan
Africa
U.S.
World
Aicraft & Spacecraft Shipbuilding
ü Airlines in the U.S. and Europe remain
cautious about purchasing aircraft but
by 2011 many aircraft orders are
scheduled to be delivered
ü The global shipbuilding industry
remains supported mainly by order
backlogs. IN 2009 the number of
vessels delivered was the highest ever
ü Ship deliveries should now
progressively decline in the years ahead
and ordering this year is expected to
remain rather depressed
ü Asian shipyards will again experience
the highest growth in 2010–2011, but
players in Brazil and the Middle East are
making their way to the top in the
performers’ list, because of proximity to
local sources of demand (particularly in
the energy and metals sectors)

12
Global Outlook for Growth in Energy and Metals Complex
0
2
4
6
8
10
12
14
16
China
India
Thailand
Brazil
Taiwan
Australia
Malaysia
Indonesia
Korea
Africa
Japan
M.East
Russia
US
EMU
Mexico
World
Energy Complex Metals & Related Mining
ü World oil demand is growing again after
the 2008–09 pullback, but upside is
limited… and the downstream oil sector
remains bogged down by overcapacity,
especially in the OECD markets
ü Scrutiny of industry operational and
safety practices and the industry costs
to find and develop new oil and gas will
increase due in part to the deepwater
well blowout in the Gulf of Mexico
ü The Metals complex has bounced back
from steep production cuts and de
stocking in 2008–09 tolead economic
growth rates
ü High growth is being seenin Mexico’s
Metals sectors. For example Grupo
Mexico plans to double capacity over
the next two years after a 3-year strike

13
Global Outlook for Growth in Construction & Construction Materials
-4
-2
0
2
4
6
8
10
12
China
India
Indonesia
Brazil
Africa
M.East
Thailand
Australia
Malaysia
Russia
Korea
Taiwan
Japan
Mexico
EMU
US
World
Construction Construction Material
ü Construction is forecastedto
remain strong in Emerging
Markets such as China, India
and Brazil
ü By contrast, spending on
building projects in developed
markets remains torpid, due to
an over-investment prior to the
recession, and a poor
environment for bank lending
and credit , and despite
government attempts at
stimulus
ü Finally a rebound in U.S.
construction will emerge in
2011 and 2012,which will
stabilize and then boost
demand for related
Construction Materials

14
Global Outlook for Growth in Wood & Paper Industries
-2
0
2
4
6
8
10
12
14
China
India
Indonesia
Malaysia
US
M.East
Thailand
Taiwan
Brazil
Japan
Russia
Africa
Korea
Australia
EMU
Mexico
World
Wood Products Paper & Pulp
ü The global outlook for the wood
and paper industry is turning
positive
ü Demand in the Far East,
especially China, recovered well
in late 2009, driving global
growth in the paper industry
ü However, the trend is clearly
downward over the long term due
to expectations of high energy
and transportation costs and
advanced the usage of electronic
communication
ü The Wood industry follows
closely activity in construction
and so is lagging the economic
recovery, will remain flat in 2010,
but see 4–5% growth by 2011–12

15
Global Outlook for Growth in Chemicals
0
2
4
6
8
10
12
China
India
Japan
Malaysia
Thailand
Taiwan
Indonesia
Korea
US
M.East
Brazil
Africa
Mexico
Russia
EMU
Australia
World
Basic Chemicals Specialty Chemicals excl. Pharma
ü Growth in Chemicals output
should outperform the
overall economy in countries
such as the U.S. and Japan
ü Emerging markets will drive
the global trend as
manufacturers expand
production to meet local
sources of demand
ü Growth is boosted in
developed markets by
manufacturers rebuilding
inventories, after depleting
stocks in the recession
ü Poor performance in U.S.
construction and consumer
segments will mute sales of
specialty chemicals

16
Global Outlook for Growth in Telecommunications & Utilities
0
2
4
6
8
10
12
14
16
Indonesia
China
India
Brazil
Mexico
M.East
Taiwan
U.S.
Malaysia
Russia
Australia
Thailand
Africa
S.Korea
Japan
EMU
World
Telecommunications Utilities
ü Telecoms and Utilities will benefit
from one of the major themes in
emerging markets—increases in
infrastructure spending
ü Developing economies will witness
the strongest growth in telecom
sales due to their lower saturation
rates and faster macro economic
growth
ü Telecoms infrastructure is
increasingly focused on wireless
ü Utilities sales will rebound in 2010–
11, led by strong demand growth
from both the industrial sectors
ü Capacity additions should generally
lead sales in Europe and North
America, and continue to be focused
on renewables, gas-fired and
nuclear generation

17
Global Outlook for Growth in Retail Trade, Tourism & Leisure
0
2
4
6
8
10
12
China
India
Indonesia
Malaysia
M.East
Brazil
Africa
Thailand
Mexico
U.S.
S.Korea
Taiwan
Russia
Japan
Australia
EMU
World
Retail Trade (excl. Auto) Tourism & Leisure
ü The strength of recoveries in asset
and home prices in Europe and
the United States will drive
patterns in retail and discretionary
ü The recovery in Tourism, Hotels
and Leisure will be slow in
Western countries where
consumers are still threatened by
unemployment and debt
ü In Emerging Asia, rise of the
middle class and change in
strategy based on G-7 demand to
the one boosting households’ real
purchasing power will drive
consumer spending
ü Several leading global companies
in these sectors remain burdened
by excessive debt and balance
sheet leverage

18
Global Outlook for Growth in Consumer Staples Sectors
-4
-2
0
2
4
6
8
10
12
14
China
Thailand
Indonesia
Malaysia
India
Taiwan
Brazil
M.East
Korea
Africa
Japan
US
Russia
EMU
Mexico
Australia
World
Food, Beverages, Tobacco Textile & Apparel
ü Food, Beverages, Tobacco
sales are forecasted to see
positive growth across the
globe
ü Mexico maintains a solid
comparative advantage
position in the Beverage
industry but faces poorer
prospects in other parts of the
Food complex
ü Textile &Apparel sales will
follow a similar trend, driven by
trends in local consumer
spending
ü The Apparel industry in North
America and Europe has lost
comparative advantage to
China and other lower income
locations

19
Global Outlook for Growth in Financials & Real Estate
0
2
4
6
8
10
12
14
16
China
India
Brazil
Indonesia
Malaysia
Taiwan
M.East
Korea
Africa
Russia
Thailand
Mexico
Australia
US
EMU
Japan
World
Banking & Related Financials Real Estate
ü Bank lending is still contracting or is
tepid in the U.S. and West Europe, but
is flowing more freely in BRIC
countries and Mexico
ü Banks in the United States and Europe
are also under pressure from expected
major reforms that will lead to
significantly tougher oversight and
limits on capital and compensation
ü In China and many emerging countries
more focus is on regulating the lending
in order to limit the risks of excessive
credit and asset price bubbles
ü Mexico’s Banking sector has “safe”
(robust) capitalization levels and
solvency ratios. Growth of new credit
is driven by corporate demand, but
banks continue to show declines in
their consumer credit portfolios

20
Global Outlook for Business and IT Services including R&D
0
2
4
6
8
10
12
14
China
India
Malaysia
Indonesia
Brazil
Thailand
Taiwan
M.East
Russia
Africa
Australia
U.S.
Mexico
S.Korea
EMU
Japan
World
Business Services Information Technology Services
ü IT services, R&D and
technical business skills are
among the best performing
sectors during the recession
ü These are major beneficiaries
of new developments in
computing technology,
communication and hardware
ü These have also ranked
highly among the sources of
growth in employment
ü Several of the influential
companies in this sector
enjoy healthy balance sheets
and much cash, are looking
for growth via M&Aand
penetration of new markets

21
Global Outlook for Growth in Public Administration,
Defense & Education
-2
0
2
4
6
8
10
India
China
M.East
Africa
Malaysia
Indonesia
Brazil
Thailand
Australia
Russia
Taiwan
Mexico
Korea
US
EMU
Japan
World
Public Administration & Defence Education
Forecast Growth in Real Sales (2010–11 CAGR) ü As a result of the crisis,
countries have increased
public expenditure to
strengthen aggregate
demand, limit the depth of
the recession and ensure a
faster recovery
ü Now, with public finances
strained, many
governments will need to
consider how to unwind the
stimulus and seriously cut
back on spending
ü Key developmental goals of
the stimulus are: energy
and construction, other
infrastructure, expanding
education and health
services, providing funding
for technological research
and development

Thank you
Mark Killion, CFA
Managing Director, World Industry Group, IHS Global Insight
mark.killion@ihsglobalinsight.com
For more information, please see our public Web sites:
http://www.ihsglobalinsight.com/WorldIndustry
Download a copy of this presentation at:
www.ihsglobalinsight.com/events/MexConf_July2010_presentations

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