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Overview of the Mexican Economy
Alejandrina Salcedo
October 9th, 2015
Banco de México
U.S.-Mexico Manufacturing: Back in the RaceFederal Reserve Bank of Dallas, El Paso Branch
Economic ActivityIII
Outlook and challengesIV
External ConditionsI
InflationII
1
The international economic environment has become even morechallenging. In particular, global economic growth has been lower thanexpected.
2
s. a./ seasonally adjusted.Note: The sample of countries represents 86.1% of the world’s GDP measuredby purchasing power parity.Source: Elaborated by Banco de México with data from Haver Analytics.
World GDP GrowthAnnual percentage change, s. a.
Global Economic Growth ForecastsAnnual percentage change
Source: IMF.
3.0
3.5
4.0
4.5
5.0
5.5
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
April 2011April 2012
April 2013
April 2014
April 2015
ObservedForecast
-6
-4
-2
0
2
4
6
8
10
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
World
Advanced
Emerging
CRB1/ Commodities IndexIndex 31-dic-2007=100
Evolution of Selected Crude Oil PricesDollars per barrel
Source: Bloomberg.
CRB Index without Energy
Source: Bloomberg.1/ The CRB Index of Thomson Reuters is composed of 19 commodities, which are dividedin 4 groups: energy (39%), agricultural (41%), precious metals (7%) and industrial metals(13%). Its subcomponent, CRB without energy, is composed of 15 commodities which aredivided in 3 subgroups: agricultural (67%), precious metals (12%) y and industrial metals(21%).
Commodity prices, particularly oil prices, are well below the levels seenin recent years and are expected to remain low.
3
40
50
60
70
80
90
100
110
120
130
140
2008 2009 2010 2011 2012 2013 2014 2015
October
CRB Index
CRB Index without Energy
25
50
75
100
125
150
2008
2009
2010
2011
2012
2013
2014
2015
October
WTI
Brent
MexicanMix
Evolution of the Implicit Volatility Index of the S&P500 (VIX)1/
Percentage
Source: Bloomberg.1/ Refers to the weighted implicit-one-month-options volatility index for the S&P 500 published by the Chicago Board Options Exchange.
Financial markets volatility has increased, mainly reflecting theuncertainty that prevails about the timing and pace of future increasesin the FED´s policy rate.
4
10
30
50
70
90
110
2007
2008
2009
2010
2011
2012
2013
2014
2015
Aug 2007: US mortgage crisis begins.
Sep 2008: Lehman Brothers declares bankruptcy.
May 2010: European debt crisis.
Aug 2011: S&P downgrades US credit rating.
Aug 2015: Uncertainty over China’s economic performance
October
5
In this environment, emerging markets’ currencies have depreciatedsignificantly.
Source: Bloomberg.
Emerging Economies: Nominal Exchange Rate against USD
Index 01-Jan-2013 = 100
5
90
100
110
120
130
140
150
160
170
180
190
200
ene.
-13
mar
.-13
may
.-13
jul.-
13
sep.
-13
nov.
-13
ene.
-14
mar
.-14
may
.-14
jul.-
14
sep.
-14
nov.
-14
ene.
-15
mar
.-15
may
.-15
jul.-
15
sep.
-15
2014
Korea
Chile
Colombia
South Africa
Depreciation
Brazil
Mexico
October
Economic ActivityIII
Outlook and challengesIV
External ConditionsI
InflationII
6
Consumer Price IndexAnnual percentage change
Source: Banco de México and INEGI.*/ Information up to september 2015.
Inflation in Mexico is at minimum historical levels. The currency depreciationhas not visibly impacted it.
7
1
2
3
4
5
6
7
8
9
10
11
12
13
ene.
-03
sep.
-03
may
.-04
ene.
-05
sep.
-05
may
.-06
ene.
-07
sep.
-07
may
.-08
ene.
-09
sep.
-09
may
.-10
ene.
-11
sep.
-11
may
.-12
ene.
-13
sep.
-13
may
.-14
ene.
-15
sep.
-15
Non-Core
Core
Headline
Core Price IndexAnnual percentage change
Source: Banco de México and INEGI.*/ Information up to september 2015.
8
Merchandise Services
There seems to be some pass-through from the exchange rate to prices ofdurable goods, although there is no evidence of transmission to other pricesin the economy.
0
1
2
3
4
5
6
7
8
9
2008
2009
2010
2011
2012
2013
2014
2015
-2
-1
0
1
2
3
4
5
6
7
8
9
2008
2009
2010
2011
2012
2013
2014
2015
Non Durable Goods
Durable Goods
Merchandise
Housing
Education
Services
Other Services
Annual Headline Inflation ExpectationsMedian, %
9
Inflation expectations remain well anchored.
9
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Banco de México Survey.
Next 4 Years
Next 5-8 Years
Variability Interval
End of 2016
End of 2015
September
Economic ActivityIII
Outlook and challengesIV
External ConditionsI
InflationII
10
The Mexican economy has continued to grow at a moderate pace.
Economic Activity Indicators Index 2008 = 100, s. a.
s. a. / Seasonally adjusted data.Source: Mexico’s System of National Accounts, INEGI.
11
Gross Domestic ProductAnnualized quarterly % change, s.a.
s. a. / Seasonally adjusted data.Source: Mexico’s System of National Accounts, INEGI.
80
90
100
110
120
130
140
150
160
90
95
100
105
110
115
120
2008
2009
2010
2011
2012
2013
2014
2015
July
Agricultural
Total IGAEIndustrial production
Services
-15
-12
-9
-6
-3
0
3
6
9
12
2008
2009
2010
2011
2012
2013
2014
2015
II-2015
4.55
1.86
While manufacturing shows a positive growth trend, mining has been a dragfor industrial activity and construction has remained subdued.
Industrial ActivityIndex 2008 = 100, s. a.
s. a. / Seasonally adjusted data.Source: Mexico’s System of National Accounts, INEGI. 12
85
90
95
100
105
110
115
120
125
2008
2009
2010
2011
2012
2013
2014
2015
July
Mining
Manufacturing
Construction
Electricity
Industrial Activity
13
Production of crude oil has experienced an important reduction.
Source: Pemex.
Production Platform of Crude OilThousand barrels per day
13
2,150
2,200
2,250
2,300
2,350
2,400
2,450
2,500
2,550
2,600
Jan2012
Mar May Jul Sept Nov Jan2013
Mar May Jul Sept Nov Jan2014
Mar May Jul Sept Nov Jan2015
Mar May Jul Sept
September
2014 average: 2,429 tbd
Jan-Sep 2015average: 2,264 tbd
Accident
2013 average: 2,522 tbd
2012 average: 2,548 tbd
Transport equipment production remains the main driver of manufacturing.
1414
Manufacturing GDPIndex 2008 = 100, s.a.
Source: INEGI.
I-200
8
III-2
008
I-200
9
III-2
009
I-201
0
III-2
010
I-201
1
III-2
011
I-201
2
III-2
012
I-201
3
III-2
013
I-201
4
III-2
014
I-201
5
50
70
90
110
130
150
170
190
II-2015
Total
Transport Equipment
Rest
Production of Light VehiclesThousand units, s.a. annualized
s. a. / Seasonally adjusted data.Source: Banco de México with information from AMIA.
600
900
1,200
1,500
1,800
2,100
2,400
2,700
3,000
3,300
3,600
2008
2009
2010
2011
2012
2013
2014
2015
September
The performance of the automotive industry has been strong in recent yearsand is posed to continue that way.
15
Share of Imports from Mexico in total U.S. Automotive Imports
%
Light Vehicles Production and Installed Capacity
Thousands units, s.a. annualized
Source: Prepared by Banco de Mexico with data from U.S. Census Bureau.s. a. / Seasonally adjusted data for production.Source: Production data elaborated and seasonally adjusted by Banco de México withinformation from AMIA. Installed Capacity estimation based on press releases ofassemblers and news.
15.0
318
.95
18.4
318
.86
18.4
920
.56
21.1
020
.05
18.9
518
.31
18.0
1 19.2
7 20.3
320
.74
24.0
6 25.6
426
.26
25.9
527
.72
29.5
729
.09 30
.51
13
15
17
19
21
23
25
27
29
31
33
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1H 2
014
1H 2
015 0 %
1 0%
2 0%
3 0%
4 0%
5 0%
6 0%
7 0%
8 0%
9 0%
1 00 %
2,040
2,600
3,160
3,720
4,280
4,840
5,400
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
FordVW
ChryslerGM
Mazda
NissanChryslerFord
Honda ToyotaMazda Audi
Nissan-Infiniti
Kia
Nissan-Mercedes BenzBMW
InstalledCapacity
VW
Toyota
Production*
Kia
Kia
1616
Exports lost some dynamism mainly because of weak performance ofmanufacturing in the U.S., given that manufacturing exports from Mexicoare still tightly linked to U.S. industrial production.
Manufacturing ExportsIndex 2008 = 100, s.a.
Source: SAT, SE, Banco de México, INEGI, Balanza Comercial de Mercancíasde México and SNIEG.
U.S. Industrial Production andMexico’s Manufacturing Exports to the U.S.
Index 2009-II=100, s. a.
s.a. / Seasonally adjusted data.Source: Federal Reserve Board and Banco de Mexico withinformation from SAT, SE, INEGI, Balanza Comercial deMercancías de México and SNIEG.
50
70
90
110
130
150
170
190
210
230
2007
2008
2009
2010
2011
2012
2013
2014
2015
August
Total
Automotive
Non Automotive
75
100
125
150
175
200
225
250
95
100
105
110
115
120
125
130
2008
2009
2010
2011
2012
2013
2014
2015
U.S. Industrial Production(Revised)
U.S. IndustrialProduction
(Before revision ofJuly 2015)
Mexico´sManufacturing Exports to the
U.S.
II-2015
Manufacturing Production of the U.S. and MexicoAnnual percentage change, s.a.
s. a./Seasonally adjusted data.Source: INEGI and Federal Reserve Board.
s. a./Seasonally adjusted data.Source: INEGI and Federal Reserve Board.
s. a./Seasonally adjusted data.Source: INEGI and Federal Reserve Board.
AutomotiveNon-Automotive
17
Indeed, there is a high correlation between U.S. and Mexico´s manufacturing sectors.
Total
-20
-15
-10
-5
0
5
10
15
20
25
I-200
8 IIII-2
009 III
I-201
0 IIII-2
011 III
I-201
2 IIII-2
013 III
I-201
4 IIII-2
015
Mexico's Production
US Production
US Production (previous)
II - Quarter
-20
-15
-10
-5
0
5
10
15
20
I-200
8 IIII-2
009 III
I-201
0 IIII-2
011 III
I-201
2 IIII-2
013 III
I-201
4 IIII-2
015
Mexico's Production
US Production
US Production (previous)
II - Quarter-50
-25
0
25
50
75
100
125
I-200
8 IIII-2
009 III
I-201
0 IIII-2
011 III
I-201
2 IIII-2
013 III
I-201
4 IIII-2
015
Mexico's Production
US Production
US Production (previous)
II - Quarter
1818
Consumption and investment are growing at a steady pace.
Monthly Indicator of Private Consumption in the Domestic Market and Retail Sales
Index 2008=100, s. a.
s. a. / Seasonally adjusted data.Source: INEGI.
Investment and its ComponentsIndex 2008=100, s. a.
s. a. / Seasonally adjusted data.Source: Mexico’s System of National Accounts, INEGI.
60
70
80
90
100
110
120
130
140
150
2007
2008
2009
2010
2011
2012
2013
2014
2015
July
Total
Machinery and Equipment
Construction
90
95
100
105
110
115
120
2007
2008
2009
2010
2011
2012
2013
2014
2015
July
Retail sales
Private consumption
19
The labor market still shows some slack.
National Unemployment Rate % of LFP, s. a.
LFP/ Labor Force Participation.s. a. / Seasonally adjusted data.Source: National Employment Survey (Encuesta Nacional de Ocupación y Empleo),INEGI.
Note: Top and bottom 1% percentiles not included in the nominal wage calculation,neither workers with zero income or not reporting wage not are included.Source: National Employment Survey (Encuesta Nacional de Ocupación y Empleo),INEGI.
Average Nominal Wage of Salaried Workers
Annual percentage change
3
4
4
5
5
6
6
7
7
2007
2008
2009
2010
2011
2012
2013
2014
2015
August-1
0
1
2
3
4
5
6
7
8
2006
I20
06 II
I20
07 I
2007
III
2008
I20
08 II
I20
09 I
2009
III
2010
I20
10 II
I20
10 I
2011
III
2012
I20
12 II
I20
12 I
2013
III
2014
I20
14 II
I20
15 I
II-2015
Economic ActivityIII
Outlook and challengesIV
External ConditionsI
InflationII
20
21
Outlook for the Mexican economy.
Annual Headline Inflation 1/
%
s. a. / Seasonally adjusted data1/ Quarterly average of annual headline inflation.Source: Quarterly Report April - June 2015, Banco de México
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Observed
Headline Inflation Target
Variability Interval
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
2008
2009
2010
2011
2012
2013
2014
2015
2016
2.5
–3.
5
Gross Domestic ProductAnnual % change, s.a.
s. a. / Seasonally adjusted dataSource: INEGI and Quarterly Report April - June 2015, Banco de México
1.7
–2.
5
A deterioration in investors’ outlook.
That manufacturing exports keep registering a low dynamism, if the U.S.industrial sector maintains a week performance.
A greater dynamism of the exports’ sector, given a greater than expectedrecovery of external demand and a real exchange rate depreciation.
Risks to the Growth Outlook:
.
Downward:
Upward:
22
A delay in the recovery of the national oil production in Mexico.
A further increase in international financial markets volatility.
Rapid progress in the implementation of structural reforms and in thestrengthening of the rule of law.
23
U.S. Economic Forecast.
2015 US GDP ForecastsAnnual percentage change
Source: Blue Chip.
2015 US IPIUS ForecastsAnnual percentage change
US Industrial Production IndexAnnual percentage change, s.a.
Source: Blue Chip.
2.0
2.5
3.0
3.5
mar
-13
jan-
14
mar
-14
may
-14
jul-1
4
sep-
14
nov-
14
jan-
15
mar
-15
may
-15
jul-1
5
sep-
15
September1.5
2.0
2.5
3.0
3.5
4.0
4.5
mar
-13
jan-
14
mar
-14
may
-14
jul-1
4
sep-
14
nov-
14
jan-
15
mar
-15
may
-15
jul-1
5
sep-
15
September
4.8
4.5
7.3
5.9
4.3
4.1
-3.3
0.3
1.3 2.
4 3.3
2.2 2.5
-3.4
-11.
35.
63.
02.
81.
93.
71.
8
-15
-10
-5
0
5
10
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
1.8%
s. a. / Seasonally adjusted data.Source: Federal Reserve Board and Blue Chip.
Challenges for the Mexican Economy
24
❶ Given the complex international environment, it is key to preserve a solidmacroeconomic framework.
❷ The strength of institutions is crucial to back a good functioning of theeconomy. For this reason Mexico should make an additional effort tostrengthen the institutions and the rule of law.
❸ In order to achieve higher and sustainable growth rates, it is necessary toincrease investment and productivity, which, in turn, requires clear progressin the implementation of structural reforms. Recent developments, like theauctions of oil fields and changes in telecommunications prices and retailconditions, suggest such implementation is starting to bear fruit.
25* Position in the ranking using the whole sample for each report.
Ranking goes from 1 up to 136 according to the set of countries that compose the constant sample index.Source: Global Competitiveness Report 2014-2015 and 2015-2016, World Economic Forum.
Global Competitiveness Index 2015-2016Mexico’s Relative Position in each of the 12 competitiveness pillars and in the Global Index
Sample of countries evaluated in both the previous and current reports
100
106
6359
5156
7069
85 85 8481
117111
61
46
76 73
1011
5650
59 59 5957
1
22
43
64
85
106
127
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
2014
-201
520
15-2
016
Countries evaluated above MexicoCountries evaluated under MexicoMexico's Position
Labo
r Mar
ket
Effic
ienc
y
Inst
itutio
ns
Good
s Mar
ket
Effic
ienc
y
High
er E
duca
tion
and
Trai
ning
Tech
nolo
gica
l Re
adin
ess
Infr
astr
uctu
re
Heal
lth a
nd P
rimar
y Eu
dcat
ion
FIna
ncia
l Mar
kets
De
velo
pmen
t
Busin
ess
Soph
istic
atio
n
Mac
rooe
cono
mic
En
viro
men
t
Mar
ket S
ize
Glob
al
Com
petit
iven
ess I
ndex
Inno
vatio
n
Mexico’s Ranking*1) 2014-2015: 612) 2015-2016: 57
The timely and adequate implementation of growth enhancing reforms iscrucial to achieve high and sustainable economic growth rates.
❶ Labor
❷ Education
❸ Competition
❹ Telecommunication
❺ Energy
❻ Financial
❼ Transparency
❽ Anti- corruption
A proper implementation of the reforms should boost productivity
Improvehuman capital
Efficientresourceallocation
Adoption of new technologies
Increasedinvestment
26