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Mexican Worker Transfers From U.S. May Decline: Week Ahead

By William Freebairn

Sept. 1 (Bloomberg) -- Mexico may report that workers' transfers of funds home from the U.S. declined for the sixth time in seven months as the world's biggest economy slows, boosting expectations that Mexican consumer spending will drop.

Worker remittances from the U.S. fell 2.2 percent in the first half of the year to $11.6 billion, Mexico's central bank said last month. The central bank has said remittances may decline as much as 3 percent this year.

Remittances have dropped as employment in the U.S. construction industry, where many Mexican workers find jobs, has declined. Transfers totaled $24 billion last year, or about 2.7 percent of gross domestic product, and are the second-biggest source of dollar flows to Mexico after revenue from oil exports.

``It's money that goes directly into consumption, and it's a significant amount of money,'' said Rodolfo Navarrete, head of research at Vector Casa de Bolsa, a brokerage in Mexico City.

Growth in Latin America's second-biggest economy has been reduced as much as 2 percentage points by a global financial crisis, Finance Minister Agustin Carstens said Aug. 28.

Mexico's economy grew 2.8 percent in the second quarter, the central bank said Aug. 21, less than the 3.1 percent average forecast of 25 economists in a Bloomberg survey. The central bank will announce July remittances on its Web site as soon as today.

To be sure, U.S. government reports last week on growth and employment in the world's biggest economy may help Mexican workers in the U.S., economic analyst Carmen Alcibar of Bursametrica in Mexico City said in a phone interview.

Gross domestic product increased at a 3.3 percent annual pace in the second quarter as exports surged, the U.S. Commerce Department said Aug. 28. On the same day, the Labor Department said the number of workers collecting unemployment insurance dropped 10,000 to 425,000.

Markets

Mexico's benchmark Bolsa index fell 2.2 percent last week to 26,290.99, the biggest weekly decline since July 25. Controladora Comercial Mexicana SAB, a Mexican supermarket operator, fell 13 percent to 25.67 pesos as consumer spending in the U.S. declined and local officials said economic growth in Mexico may slow.

Yields on the government's benchmark 10 percent bond due in 2024 fell 5.9 basis points to 8.49 percent. The bond's price rose 0.56 centavo to 113.25 centavos per peso, according to Banco Santander SA.

The peso fell to the lowest since mid-July this week, weakening 1.4 percent to 10.2852 per dollar, on speculation the central bank will stop lifting interest rates, reducing the spread with U.S. rates.

The following is a list of events in Mexico this week:

Event Date
Consumer confidence Sept. 4
Wal-Mart de Mexico August Sales Sept. 4

To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net
Last Updated: September 1, 2008 01:00 EDT