Mexico’s economy is showing early signs of recovering from its deepest recession since 1995. Economic activity rose 2.5% month-over-month in July, and industrial output and services are on the rebound. Tourism could put a dent in economic growth, as receipts are predicted to decline 16% this year, reports the Latin Business Chronicle. Many visitors have stayed away because of drug violence and the H1N1 flu outbreak.

As the country pulls itself out of a recession, the government is examining fiscal policy and reform, states Ken Parks for The Wall Street Journal.

The government wants to raise income and excise taxes, as well as slap a special 2% sales tax on all goods and services as it tries to replace lost oil revenue and stave off a sovereign rating downgrade.  The final answer should come by mid-November as Congress puts together its budget.

Mexico’s IPC index rose a remarkable 20% during the third quarter and 28% year-to-date, however, it has started to ease as U.S. economy continues to show signs of a wary recovery.  The United States buys 80% of Mexico’s exports and employs millions of migrant laborers who sent home $25.1 billion in remittances last year.

• iShares MSCI Mexico Investable Mkt Idx (EWW): which is up 42.3% year-to-date.

For more stories on Mexico, visit our Mexico category.

Kevin Grewal contributed to this article.

Mexico’s economy, Latin America’s second largest, contracted 10.3% in the second quarter year-over-year, manufacturing declined 16.4% and the service industry shrank 10.4%, reports Jens Erik Gould for Bloomberg.

Mexico has been stuck in a lull and joblessness has increased as the recession in the United States, which takes in 80% of Mexico’s exports, greatly decreased demand for goods.

Economist Rogelio Ramierz de la O expects the Mexican peso will depreciate along with the shrinking economy. The Central Bank estimates the economy will shrink up to 7.5% this year. A battered economy translates into less tax revenue, and including falling oil revenue, will create a budget deficit of 3% of GDP this year.

The quarter-on-quarter drop of 1.12% in the second quarter comes to an annualized decline of 4.4%, which marked a great improvement from the previous quarter, report Nicholas Casey and Anthony Harrup for The Wall Street Journal. Alfredo Coutino, director for Latin America at Moody’s, thinks Mexico may step out of the recession by the end of the third quarter.

Why is its ETF doing so well? Thank Mexico’s robust telecom sector, in which the ETF has a 38% weighting. Forecasts for the sector in Latin America call for continuing strong demand and strong revenue growth throughout the continent.

• iShares MSCI Mexico Investable Mkt Idx (EWW): up 38% year-to-date

For more information on Mexico, visit our Mexico category.

Max Chen contributed to this article.

Around 80% of Mexico’s exports go to the United States, report Hugh Collins and Valerie Rota for Bloomberg. The Mexican economy is also heavily reliant on its non-oil export sector, and if that sector slows, then the economy comes to a crawl. In fact, both Standard & Poor’s and Fitch Ratings reduced the outlook on Mexico’s credit rating to BBB+, citing the government’s low tax revenue and dependence on crude oil exports.

President Felipe Calderon says Mexico’s economy contracted at an annualized 9% in the first quarter year-over-year, according to Trading Markets. The Central Bank calculates Mexico’s GDP will fall by 9.5% in the second half of 2009.

Calderon has pointed to the $4 billion in direct investment so far this year as a sign that investors favor Mexico’s lower production and logistics costs. He also expects Mexico to spearhead the recovery of the global automotive industry, noting that the auto sector represents 20% of Mexico’s GDP and supports 3 million households.

• iShares MSCI Mexico Investable Mkt Idx (EWW): up 23% year-to-date

• CurrencyShares Mexican Peso Trust (FXM): up 6.9% year-to-date

For more information on Mexico, visit our Mexico category.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

In Harvard’s top U.S.-listed holdings for the end of the first quarter, the most copious amount of U.S.-listed equity holding by a wide margin was in iShares MSCI Emerging Markets Index (EEM), writes Carl T. Delfeld for Seeking Alpha.

• iShares MSCI Emerging Markets Index (EEM): up 27.2% year-to-date

This has been a growing trend, with more investment interest in individual emerging markets. Harvard isn’t stopping with just EEM, either. The endowment is also increasing its allocation to funds focused on China, Brazil, India, Mexico and South Africa.

Why are emerging markets so attractive these days? The sentiment toward them has been lifting gradually lately, reports Nick Godt for MarketWatch. Yesterday’s performance in India only furthered the good feelings toward those markets. Some caution that the rally might be overdone, so be sure to watch the trend lines for hints.

A potential trader may look at the whole of the emerging markets through ETFs such as EEM, or one may pick out individual countries to satiate one’s investment pangs.

Current emerging markets above their trend lines include:

• SPDR S&P China (GXC): up 27.3% year-to-date

• iShares MSCI Taiwan Index (EWT): up 40.1% year-to-date

• iShares MSCI Singapore Index (EWS): up 24.3% year-to-date

• SPDR S&P Emerging Europe (GUR): up 29.9% year-to-date

• iShares MSCI Mexico Investable Mkt Idx (EWW): up 12.6% year-to-date

• Market Vectors Russia (RSX): up 59.3% year-to-date

For full disclosure, some of Tom Lydon’s clients own shares of GXC.

Max Chen contributed to this article.

In the past, Latin American countries like Argentina, Bolivia and Ecuador have all publicly denounced the IMF, write Juan Forero and Joshua Partlow for The Washington Post. The treasuries of Latin American countries were also full from being nations rich in resources and commodities.

After being thrashed by the financial crisis, these countries are now softening up to the IMF assistance. The IMF is the only source that is able to provide copious amounts of cash to aid seeking countries.

Economists estimate that Ecuador needs as much as $2 billion to help bridge a $3.5 billion trade deficit. More recently, Colombia, Costa Rica, El Salvador and Guatemala are queuing up for loans, and Mexico is getting $47 billion.

In Brazil, the pace of rate cuts is slowing as more signs that the crisis is backing off have emerged, report Joshua Goodman and Andrew Soliani for Bloomberg. The country recently experienced its deepest quarterly contraction on record, but companies are now re-hiring workers and car sales jumped 17% in March.

In Mexico, the deadly influenza has reduced consumer shopping, reports Ken Jones for The Wall Street Journal. For a couple of weeks and possibly longer, if the flu drags on indefinitely, the travel, tourism and entertainment sectors could be negatively affected.

Retail sales were down 8.6% in February compared to the same month last year. Economists had previously projected a 3.3% contraction in the economy.

• iShares S&P Latin America 40 Index (ILF): up 18% year-to-date

• iShares MSCI Mexico Investable Mkt Idx (EWW): down 1.2% year-to-date

Max Chen contributed to this article.

Mexico’s economy is set to shrink 2.8% this year based upon falling exports, underscoring the deep troubles that led it to seek help from the International Monetary Fund. Miguel Angel Gutierrez for Forbes reports that Mexican factories that make everything from cars to vacuum parts are reeling from the dropoff in orders from the United States, where the economy has contracted sharply in recent months.

This forecast was much more bleak than a previous outlook for a 1% contraction in 2009 and was roughly in line with private-sector views. Meanwhile, Mexico’s Felipe Calderon faces a defeat in mid-term elections that could hobble the rest of his presidency. He is also trying to stave off the recession while dealing with deadly drug gangs.

Since he took power in late 2006 and launched a war on drug cartels, drug killings have skyrocketed and not much has improved, says Catherine Bremer for Forbes. The global financial crisis is now spilling over the borders and into the country. Getting control of this situation will be imperative for this country’s growth and stability.

President Barack Obama is readying for a visit to the country on Thursday in a show of support in Calderon’s efforts to fight the drug violence, David Alexander reports for Reuters.

• iShares MSCI Mexico Investable Market Index (EWW): up 0.5% year-to-date

In a matter of days after Calderón’s term started, he dispatched the military to deal with drug-related crime, reports Chris Hawley for USA Today. But now, the citizens are weary of the ensuing violence. The military offensive has created a power vacuum, which has created heated infighting amongst the cartels.

There is a renewed interest to enact the death penalty and the left-leaning Democratic Revolutionary Party has put up billboards and posters that proclaim “The Death Penalty for Killers and Kidnappers.” This also touches upon the bruised image of Mexico as being a haven for kidnapping organizations.

The drug-running industry seems to be quite lucrative and Forbes magazine recently put Mexico’s most-wanted criminal, billionaire Joaquin Guzman, into the 701st rank in the recently published billionaire club list, remarks Charlotte Cardingham for Money. Guzman is said to be the head of one of the most powerful drug cartels and authorities say he is mostly responsible for the widespread violence.

The violence is shifting the focus of U.S. border policy from illegal immigration to the flow of cash and weapons, reports Carolyn Lochhead for The San Francisco Chronicle. We could be gearing up for a trade war after Mexico has put $2.4 billion in tariffs on American items after the Obama administration stopped some Mexican long-haul trucks from coming into the country.

In an attempt to draw more travelers, airliners are offering good deals, like the $66 round trip promotional deal by Volaris, that will continue throughout the spring season for flights to locales like La Paz and the Los Cabos region in Mexico, writes Pete Thomas for The Los Angeles Times. But tourism is down and many blame the U.S. media for its portrayal of the the drug war, which have many thinking Mexico is full of guns blazing and bullets flying overhead.

• iShares MSCI Mexico (EWW): up 17.3% in the last week; up 1% in the last month; down 20.1% in the last three months

Max Chen contributed to this article.

• Fearful investors fled from Mexico and turned to stable economies such as the United States and Japan as soon as the financial crisis hit and credit markets tighten up.
• Mexico’s dependency on the U.S. economy; as the U.S. economy slows down, so does Mexico’s.
• The fading of relatively high interest rates, the Bank of Mexico cut short-term rates from 8.25% to 7.75%.

The Plus Side. On the positive side, the plunge in the peso makes Mexican exports cheaper for U.S. consumers.  However, the Mexican government may be forced to instill a stimulus package to save what is left of their economy, similar to what the developed nations around the globe are doing.

Some ETFs influenced by the decline in the peso are:

• iShares MSCI Mexico Index Fund (EWW): down 19.1% over the last month

• Rydex CurrencyShares Mexico Peso Trust (FXM): down 5.64% over the last month

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

After major job cuts in the U.S., money sent back to Mexico from migrant workers decreased 3.6% in 2008, the first decline since Mexico first started tracking the money flow 13 years ago, reports Joel Millman for The Wall Street Journal.

Mexico’s Central Bank has reported a $1 billion drop in remittances for 2007, almost twice the forecasted value. After oil, the remittances sent back to Mexico are the second-largest source of currency. It is anticipated that the annual economic output will contract 0.8 to 1.8 percent after a modest 1.5% growth for 2008.

Decades ago, most migrant Mexicans worked in agriculture. It is now reported that 5% of migrants today work on U.S. farms whereas 38% are in construction and manufacturing, and 57% are in services.

Washington-based Pew Hispanic Center estimates 239,000 immigrant Hispanic workers are unemployed as of the third quarter of 2008, and 100,000 were from construction alone.

• iShares MSCI Mexico (EWW): up 1.6% in the last week; down 12.5% in the last month

Economists have lauded the shrewd economic policies that reduced debt and inflation, reports Elisabeth Malkin for The New York Times. But this has not saved them from the effects of global recession as investors pull billions away from emerging markets.

The Mexican government forecasts a growth of 1.8% for 2009 while private analysts say it will stagnate and not grow at all. The more ardent pessimists predict a contraction of 1.7%.

As global oil prices plunged, the finance ministry has dealt with their dependence on oil export revenues which has financed around 40% of the country’s budget.

Next year the government will begin to run its first deficit in five years and take in new loans from financial institutions like the World Bank to support social and environmental projects. The central bank has $85 billion in reserves to further defend the peso and changes in interest rates.

• iShares MSCI Mexico (EWW): down 41.1% year-to-date