presentación de powerpoint€¦ · quarterly report january - march 2019. 7. during most of q1...

Quarterly Report

May 29, 2019January – March 2019

1

2

3

4

Outline

5

Inflation

Monetary policy

Current situation of the Mexican economy

External conditions

Quarterly Report January - March 2019 1

Forecasts and final remarks

-12

-8

-4

0

4

8

12

2001

2004

2007

2010

2013

2016

2019

-1

0

1

2

3

4

5

6

2015

2016

2017

2018

2019

2

Source: CPB Netherlands and Markit.

Quarterly Report January - March 2019

World GDP Growth 1/

Quarterly Annualized % change, s. a.

s. a. / Seasonally adjusted figures.1/ The sample of countries used in the calculations accounts for85.5% of world GDP measured by purchasing power parity.Source: Prepared by Banco de México with data from HaverAnalytics, J.P. Morgan and International Monetary Fund (IMF).

Global Activity Indicators Annual % change of 3-month moving average and

deviation from the threshold of 50

Global economic activity exhibited a modest recovery in Q1 2019, after having decelerated during the secondhalf of 2018. Such moderate pace of growth has been associated mostly with the worsening of businessinvestment, industrial production and trade.

Global Consumer and Business ConfidenceStandard deviations of the average of

2010 to date

Source: J.P. Morgan.

2014

2015

2016

2017

2018

2019

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2.0March

Consumer confidence

Business confidence

World trade

PMI: new orders

Industrial production

April

World Economy

World

Advanced

Emerging

MarchQ1 2019

-2

-1

0

1

2

3

4

2012

2013

2014

2015

2016

2017

2018

2019

-3

-2

-1

0

1

2

3

4

5

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

3

Labor markets in advanced economies continued to exhibit strength and some wage growth.

Unemployment GapPercentage points

Nominal Wages Annual % change, s. a.

Source: Prepared by Banco de México with data from CBO, OECD, Economic Outlook, May2019 and National Statistical Agencies.

s. a. / Seasonally adjusted figures. Note: Wage indicators of U.S., euro area, U.K. and Japancorrespond to average hourly remunerations, compensation per employee, weekly averageremunerations and average monetary remunerations, respectively. Source: BLS, BCE, Bloombergand ONS.


United States

Euro area

United Kingdom

Japan

March

Advanced Economies

United States

Euro areaUnited Kingdom

Japan

AprilAprilMarch

0

20

40

60

80

100

120

2014

2015

2016

2017

2018

2019

4

International commodity prices trended upwards during Q1 2019. In particular, crude oil prices registeredsignificant hikes during the first months of the year. Nevertheless, the recent escalation of trade tensionscontributed, to a slight downward adjustment in crude oil prices.

Commodity Prices Index 2014 = 100

International Crude Oil PricesUS dollars per barrel

Source: International Monetary Fund. Source: Bloomberg.


Brent

WTI

Mexican crude oil mix

May0

20

40

60

80

100

120

140

160

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

April

Total

Energy

Metals

Food

-2

-1

0

1

2

3

4

2013

2014

2015

2016

2017

2018

2019

-2

-1

0

1

2

3

4

2013

2014

2015

2016

2017

2018

2019

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Median 2.0Median 2.1

Median 1.9


In the major advanced economies, headline inflation increased slightly due to the increase in energy prices.Likewise, core inflation as well as inflation expectations drawn from market instruments remained low and, inseveral cases, decreased, thus suggesting that inflationary pressures remain contained.

Headline InflationAnnual % change

Core InflationAnnual % change

1/ Refers to the Personal Consumption Expenditure Price Index(PCE). Source: Haver Analytics, BEA, Eurostat and StatisticsBureau.

2/ Refers to the Personal Consumption Expenditure Price Index thatexcludes food and energy (PCE). 3/For Japan excludes energy and freshfood and the direct effect of the consumption tax increase. Source:Haver Analytics.

Euro area

United Kingdom

Japan

United States 1/

Euro area

United Kingdom

Japan 3/

United States 2/

Advanced Economies Inflation Forecasts for 2019%

4/ Refers to the expectation for the Consumer Price Index (CPI).Source: Consensus Forecast. The last survey was conducted in May, 2019.

United States 4/

Canada

United Kingdom

Euro area

Japan

May 2019 ForecastMarch 2019 Forecast

December 2018 ForecastObserved 2018

April April

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Median 1.4


Median 1.9Median 1.8Median 2.1

Median 1.9


Median 0.6Median 0.6Median 1.0

March March

6

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014

2015

2016

2017

2018

2019

2020

Reference Rates and Implied Trajectoriesin OIS Curves 1/

%

Prospective Distribution of the Reference Rate atthe End of 2019 Implied in Options 3/

Density

1/ OIS: Fixed-for-floating swap where the fixed interest rate is the one day effective reference rate. 2/ Data for the observed federal funds rate corresponds to the average between the lower and upper bounds of the target range (2.25% -2.50%). 3/ The implicit distribution of the reference rate is obtained from the changes in interest rates implicit in options over 3-month futures (LIBOR in the U.S. and United Kingdom, EURIBOR in the euro area and bankers acceptance inCanada). The spread between the reference rate and the 3-month rate is assumed to remain constant. The implicit distribution in options is calculated using the Breeden-Litzenberger method.Source: Bloomberg.

The aforementioned environment has strengthened expectations that the central banks of the main advancedeconomies will adopt a more accommodative monetary policy.

Advanced Economies

End of2020

End of2019

Federal Reserve 2/

Bank of Japan

European Central Bank

Bank of England

May 28, 2019December 31, 2018October 01, 2018

Implied target rate in OIS curve

Bank of Canada


Dec 31, 18Oct 01, 18 May 28, 19 Reference rate

United Kingdom0.75%

Canada1.75%

United States2.375%

Euro area-0.40%

ModeOct 01, 18: 3.13%Dec 31, 18: 2.49%May 28, 19: 2.31%

ModeOct 01, 18: 2.52%Dec 31, 18: 1.71%May 28, 19: 1.78%

ModeOct 01, 18: 1.16%Dec 31, 18: 0.94%May 28, 19: 0.76%

ModeOct 01, 18: -0.17%Dec 31, 18: -0.30%May 28, 19: -0.41%

Forecasts

88

90

92

94

96

98

100

102

104

106

Jan-

16Ap

r-16

Jul-1

6O

ct-1

6Ja

n-17

Apr-

17Ju

l-17

Oct

-17

Jan-

18Ap

r-18

Jul-1

8O

ct-1

8Ja

n-19

Apr-

19

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Jan-

19

May

-19

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Jan-

19

May

-19


During most of Q1 2019, interest rates in the U.S. decreased given the more accommodative monetary policystance. This trend became more evident in recent weeks due to the increase in trade tensions between the U.S.and China and the consequent deterioration of the economic outlook.

2-year 10-year

US Dollar Indices: DXY 1/ andTrade Weighted Index 2/

Index Dec-31-2015 = 100

Source: Bloomberg. Source: Bloomberg. 1/ DXY index estimated by Intercontinental Exchange (ICE) based on the weightedgeometric mean of the dollar’s value compared with a basket of 6 other majorcurrencies: EUR: 57.6%, JPY: 13.6%, GBP: 11.9%, CAD: 9.1%, SEK: 4.2% and CHF: 3.6%.Base=100. 2/ Trade-weighted Index of the Federal Reserve; main trade partners:China (21.3%), Eurozone (16.38%), Canada (12.7%), Mexico (11.9%), Japan (6.9%),South Korea (3.9%), United Kingdom (3.35%).Source: Bloomberg.

United Kingdom

United States

Euro area

May

JapanUS dollarappreciation

May

United Kingdom

United States

Euro area

Japan

May

Advanced Economies: Government Bonds Interest Rates %

DXY

Trade WeightedIndex (TWI)

-90

-70

-50

-30

-10

10

30

50

70

90

110

130

150

170

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Weeks

20082014

2015

2016

2017

2018

2019

8

In this scenario, in which some of the risks for the global economy had been mitigated, investors showed agreater risk appetite, reflected in an increase in capital flows to emerging economies. In recent weeks, as tradetensions escalated, this favorable performance reversed.

Global Risk Appetite IndexIndex

Accumulated Capital Flows 1/

Billions of dollarsNominal Exchange Rate against USD

Index Jan-01-2017 = 100

Source: Credit Suisse. 1/ The sample covers funds used for the buying-selling of stocks andbonds from emerging countries, recorded in advanced countries(includes debt and equity). Flows exclude portfolio performanceand exchange rate fluctuations.Source: Emerging Portfolio Fund Research.

Fuente: Bloomberg.


-5

-3

-1

1

3

5

7

2012

2013

2014

2015

2016

2017

2018

2019

50

80

110

140

170

200

80

90

100

110

120

130

140

Jan-

17

Apr-

17

Jul-1

7

Oct

-17

Jan-

18

Apr-

18

Jul-1

8

Oct

-18

Jan-

19

Apr-

19

Euphoria

Panic

Risk appetite

May

ChileColombia

Turkey

Brazil

Mexico

Depreciation

South Africa May

May 22

Emerging Economies

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



10

The weakness exhibited by the Mexican economy at the end of 2018 intensified in Q1 2019, reflecting bothexternal and domestic factors, some of which are of a transitory nature.

0.6

0.9

0.6

0.8

0.3

-0.7

1.0

0.5 0.

61.

30.

41.

10.

61.

01.

2-0

.10.

60.

41.

11.

00.

60.

3-0

.30.

91.

3-0

.40.

70.

0-0

.2

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2012

2013

2014

2015

2016

2017

2018

2019

90

95

100

105

110

115

120

80

90

100

110

120

130

140

2012

2013

2014

2015

2016

2017

2018

2019

Gross Domestic ProductQuarterly % change, s. a.

Global Index of Economic ActivityIndex 2013=100, s. a.

s. a. / Seasonally adjusted figures.Source: Mexico’s National Accounts System (SCNM, for its acronym inSpanish), INEGI.

s. a. / Seasonally adjusted figures.Note: The figure in parentheses represents its participation in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym inSpanish), INEGI.

Note: The long-term trend of the coincident and leading indicators is representedby the line located at 100. The dates signal the month and year in which aninflexion point was observed in the leading indicator. The negative figures inparenthesis indicate the number of months in which a given inflexion point of theleading indicator precedes the inflexion point of the coincident indicator.Source: INEGI.


Q1 2019

Services (62.7%)

Total

Industrial (34.2%)

Agriculture and livestock (3.2%)

March

System of Cyclical IndicatorsPoints

95

96

97

98

99

100

101

102

103

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

FebruaryMarch

Feb 2009(-4)

Sep 2007(-8)

Leading

Coincident

70

80

90

100

110

120

2012

2013

2014

2015

2016

2017

2018

2019

90

100

110

120

130

140

2012

2013

2014

2015

2016

2017

2018

2019

90

100

110

120

130

140

2012

2013

2014

2015

2016

2017

2018

2019

11

s. a. / Seasonally adjusted figures.Note: The figure in parentheses represents its participation in 2013.1/ Trade includes wholesale and retail trade.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.


Mining (22.3%)

Manufacturing (49.7%)

Construction (23.3%)

Utilities (4.7%)

March

Industrial ActivityIndex 2013=100, s. a.

Total Professional, management of companies and

enterprises (8.9%)

March

Transportation and information (14.0%)

Public administration (7.1%)

Finance and real state (23.8%)

s. a. / Seasonally adjusted figures.Note: The figure in parentheses represents its participation in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronymin Spanish), INEGI.

IGAE ServicesIndex 2013 = 100, s. a.

March

Trade 1/ (28.8%)

Accommodation and food services (3.6%)

Arts, entertainment, and recreation (3.8%)

Educational and health care (9.9%)

The decline in economic activity was due to the contraction of both secondary and tertiary activities.

85

90

95

100

105

110

115

120

125

130

135

2012

2013

2014

2015

2016

2017

2018

2019


25

33

41

49

57

65

1.2

1.6

2.0

2.4

2.8

3.2

2012

2013

2014

2015

2016

2017

2018

2019

90

95

100

105

110

115

25

30

35

40

45

50

2012

2013

2014

2015

2016

2017

2018

2019

Total Private Consumptionand Components

Index 2013=100, s. a.

RemittancesBillion of USD and of constant pesos, s. a.

Consumer Confidenceand Total Real Wage Bill

Response balance and index 2013=100, s. a.


s. a. / Seasonally adjusted figures.1/ Prices as of the second fortnight of July 2018.Source: Banco de México and INEGI.

s. a. / Seasonally adjusted figures.Source: Prepared by Banco de México with data from INEGI’s NationalEmployment Survey (ENOE), and the National Consumer ConfidenceSurvey (ENCO), INEGI.

US dollars

Mexican pesos 1/

March

At the end of 2018 and during the reported period, private consumption exhibited a weak performance.Remittances and consumer confidence remain at high levels.

Q1 2019

Real wagebill

Consumerconfidence

AprilFebruary

Imported goods (10%)

Total

Domestic Services (45%)

Domestic goods (45%)

90

95

100

105

110

115

120

125

2012

2013

2014

2015

2016

2017

2018

2019

60

70

80

90

100

110

120

130

140

2013

2014

2015

2016

2017

2018

2019


Gross fixed investment continued exhibiting a weak performance, despite the rebound observed in January,which was due to specific factors.

Investment and its ComponentsIndex 2013=100, s. a.

Real Value of Construction Output byContracting Institutional Sector 1/

Index 2013=100, s. a.


s. a. / Seasonally adjusted figures.Note: The figure in parentheses represents its participation in 2018.1/ Seasonally adjusted by Banco de México, except for total construction.Source: Prepared by Banco de México with data from ENEC, INEGI.

90

100

110

120

130

140

150

2012

2013

2014

2015

2016

2017

2018

2019

February

Construction(61%)

Imported machineryand equipment (23%)

Total

Domestic machineryand equipment (15%)

Public (42.8%)

Private residential housing (18.7%)

Private (57.2%)

Private excl. residential housing (38.5%)

Total

April

s. a. / Seasonally adjusted figures.Note: The figure in parentheses represents its participation in 2018.Source: Banco de México with data from SAT, SE, Banco de México, INEGI. Mexico’sMerchandise Trade Balance. SNIEG. Information of National Interest.

Imports of Capital GoodsIndex 2013=100, s. a.

Excluding power generation andtelecom sector (87.5%)

Total

March


1/ Responses from the Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) associated with the question: In your opinion, which three main factors will limit economic activity growth in your state in the next six months?2/ Responses from the Survey of Private Sector Forecasters associated with the question: Which three main factors will limit economic growth in the next six months?Source: Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) and Survey of Private Sector Forecasters.

External conditions

Domestic economic conditions

Public finances

Governance

Monetary policy

InflationInflation and

monetary policy

28.640.5

01020304050

20.97.6

1.85.4

01020304050

19.031.5

01020304050

15.9 17.1

01020304050

8.0 3.6

01020304050

Business representatives’ opinion Private sector analysts’ opinion

Box 3. Factors that Might Hinder Mexico’s Economic Growth According to Analysts and Business Representatives’ Opinions

Inflation

12.28.9

5.21.3

1.0

11.95.4

3.6

4.53.1

8.13.3

2.31.51.5

1.10.9

0.3

4.03.4

2.01.7

1.31.0

0.80.7

0.60.4

4.42.2

1.4

14.411.7

2.71.8

9.9

0.9

0.9

0.94.5

9.01.8

5.4

14.40.9

0.91.8

0.99.9

1.8

0.9

0.9

2.70.9

Public insecurity problemsDomestic political uncertainty

CorruptionImpunity

Lack of rule of law

Increase in inputs and commodity pricesInflationary pressures in Mexico

Wage increases

Current monetary policyHigh cost of domestic financing

Uncertainty over the domestic economic situationDomestic market weakness

Households' level of indebtednessFirms' level of indebtedness

Absence of structural change in MexicoAvailability of domestic financing in Mexico

Oil production platformLack of market competition

Exchange rate uncertaintyReal exchange rate level

Juncture factors: foreign trade policyExternal market and world economy weakness

International financial market instabilityInternational political instability

Juncture factors: US monetary policyCrude oil export prices

External interest rate levelsJuncture factors: US fiscal policy

Contraction of supply of foreign resources

Tax policyPublic spending policy

Public sector's level of indebtedness

Monetary policy

Percentage Distribution of Responses from Analysts and Business Representatives when Consulted on the Three Main Factors that Could Hinder Economic Activity Growth in the Next Six Months 1,2/

Figures in % as of March 2019


Box 3. Factors that Might Hinder Mexico’s Economic Growth According to Analysts and Business Representatives’ Opinions

Analysts and Business Representatives

Percentage Distribution of Responses from Analysts and Business Representatives when Consulted on the Three Main Factors that Could Hinder Economic Activity Growth in the Next Six Months 1,2/

InflationPublic finances Other

Monetary policy

Jan 2016 Jul 2016 Feb 2017 Jan 2019 Mar 20191/ Responses from the Survey of Private Sector Forecasters associated with the question: Which three main factors will limit economic growth in the next six months?2/ Responses from the Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) associated with the question: In your opinion, which three main factors will limit economic activity growth in your state in the next six months?Source: Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) and Survey of Private Sector Forecasters.

GovernanceDomestic economic conditions

Analysts

0

10

20

30

40

50

60

70

80

90

100

2013

2014

2015

2016

2017

2018

2019

0

10

20

30

40

50

60

70

80

90

100

Anal

ysts

Busin

ess

repr

esen

tativ

es

Anal

ysts

Busin

ess

repr

esen

tativ

es

Anal

ysts

Busin

ess

repr

esen

tativ

es

Anal

ysts

Busin

ess

repr

esen

tativ

es

Anal

ysts

Busin

ess

repr

esen

tativ

es

External conditions

80

90

100

110

120

130

140

150

160

2012

2013

2014

2015

2016

2017

2018

2019

80

90

100

110

120

130

140

2012

2013

2014

2015

2016

2017

2018

2019

16

In an environment of loss of dynamism of world trade and persisting trade tensions, Mexican manufacturingexports continued to decelerate in Q1 2019.

Total Automotive and Non-automotive


Manufacturing ExportsIndex 2013 = 100, s. a.

s. a./ Seasonally adjusted series based on data in nominal USD.Note: The figure in parentheses represents its participation in 2018.Source: Prepared by Banco de México with data from Mexico’s Tax Administration Service (SAT, for its acronym in Spanish), the Ministry of the Economy (SE, for its acronym in Spanish), Banco de México, the National Institute of Statisticsand Geography (INEGI, for its acronym in Spanish). Mexico’s Merchandise Trade Balance, and National System of Statistical and Geographical Information (SNIEG, for its acronym in Spanish). Information of national interest.

Automotive (35.8%)

Non-automotive (64.2%)

April

Total

United States (82.3%)

Rest of the world

(17.7%)

April

17

The Mexican economy has registered a significant reduction in financing from external sources, which has been partlyoffset by an increase in domestic financing sources and a lower absorption of resources by the public sector. Externalaccounts have reverted their medium-term trend, currently showing a surplus in the non-oil trade balance and a deficitin the oil trade balance.

Sources and Uses of Financial Resources of the EconomyAnnual flows as % of GDP

Trade BalanceUSD million

Current Account% of GDP

Source: SAT, SE, Banco de México, INEGI. Mexico’s Merchandise Trade Balance.SNIEG. Information of national interest. Note: Bars in darker blue refer to the first quarter of each year.

Source: Banco de México and INEGI.


2.4 3.0 3.0 3.9 2.2 2.2

4.7 4.3 4.0 2.62.3 2.1

1.3

-1.5 0.0 -0.4

0.1 0.2

9.75.7

7.4 7.9

5.1 5.3

2014 2015 2016 2017 2018 Q1 2019

5.6 4.6 5.5 6.54.2 4.2

4.11.1

1.9 1.40.9 1.1

9.75.7

7.4 7.9

5.1 5.3

2014 2015 2016 2017 2018 Q1 2019

Note: Annual flows as a percentage of GDP in each reported quarter refer to the total sources and uses of financialresources in the last four quarters, expressed as a % of average nominal GDP of the same four quarters.1/ Corresponds to domestic financial assets (aggregate F1), composed of monetary and non-monetary domesticsources. 2/ Includes monetary instruments held by non-residents (i.e. the aggregate MNR, which is the differencebetween M4 and M3) and other non-monetary external sources (external debt of the Federal Government andpublic agencies and companies, commercial banks’ external liabilities, external financing to the nonfinancial privatesector, and funds raised by agencies, among others). 3/ Refers to the loan portfolio of financial intermediaries, theNational Housing Agencies (Infonavit and Fovissste), the issuance of domestic debt and external financing of firms.4/ As stated in Banco de México’s Law. 5/ Includes capital accounts, and earnings and other assets and liabilities ofcommercial and development banks, of non-bank financial intermediaries, of the National Housing Agency(Infonavit) and Banco de México –including securities issued by Banco de México for monetary regulation purposes,especially those related to sterilizing the monetary impact of the operational surplus. It includes non-monetaryliabilities from the Institute for the Protection of Bank Savings (IPAB) as well as the effect of the valuation changesof public debt instruments, among other concepts. 6/ Excluding the effect of Banco de México’s operational surplusturned in to the federal goverment. Source: Banco de México.

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-5

-4

-3

-2

-1

0

1

2012

2013

2014

2015

2016

2017

2018

2019

Sources

Uses

Q1 2019

Annual data

Current account

-1.6

-2.5-1.9

-2.6 -2.3

-1.7 -1.8

Domestic 1/

External 2/

Internationalreserves 4/

Private sectorfinancing 3/

Public sectorFinancing 6/

Total

TotalOther concepts 5/

Q1 2019

Non-oil

Oil

Total

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2012

2013

2014

2015

2016

2017

2018

2019

-2

0

2

4

6

8

10

12

14

16

Jan-

17M

ar-1

7M

ay-1

7Ju

l-17

Sep-

17N

ov-1

7Ja

n-18

Mar

-18

May

-18

Jul-1

8Se

p-18

Nov

-18

Jan-

19M

ar-1

9

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019


Labor Market Gap: Unemployment Rate 1/

Percentage points, s. a.

s. a. / Seasonally adjusted figures.1/ Shadows represent confidence bands. The interval corresponds to twoaverage standard deviations among all estimates.Source: Prepared by Banco de México with data from ENOE (INEGI).

March Q1 2019

Nominal

Real

Slack conditions in the labor market are estimated to have eased somewhat in Q1 2019, reflecting the economy’scyclical phase and the effects of wage increases on both employment and informal labor.

2/ During Q1 2019, an average of 20.3 million workers were registered at IMSS.Real wages were deflated using the CPI.3/ Integrated by the municipalities mentioned in the DOF of December 26,2018, most of which share boundary with the northern border.Source: Prepared by Banco de México with data from IMSS.

Wage IndicatorsAnnual % change

Average Wage of Salaried Workers According to National Employment Survey (ENOE) 4/

(Formal and Informal Sectors)

4/ To calculate the average nominal wage, the bottom 1 percent and thetop 1 percent in the wage distribution are excluded. Individuals withincome reported as zero or those who did not report income are excluded.Source: Prepared by Banco de México with data from INEGI (ENOE).

Daily Wage Associated withIMSS-insured Workers 2/

April

Northern border (nominal) 3/

National(nominal)

National (real)

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-6

-5

-4

-3

-2

-1

0

1

2

3

4

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

19

As to the economy’s cyclical position, it is estimated that economic slack conditions loosened towards the endof 2018 and during Q1 2019.

Output Gap 1/

% of potential output, s. a.Monthly Slack Index 3/

%

s. a. / Seasonally adjusted figures.1/ Output gap estimated with a tail-corrected Hodrick-Prescott filter; see Banco de México (2009), “InflationReport (April-June 2009)", p.74.2/ Excludes both oil and gas extraction, support activities for mining, and petroleum and coal products'manufacturing.Note: Output gap confidence interval calculated with a method of unobserved components. The dotted linerefers to the confidence interval for the gap calculated excluding the oil industry while the blue area is theinterval corresponding to the total GDP.Source: Prepared by Banco de México with INEGI data.

3/ Index constructed using the Model Confidence Set (MCS) methodology; see Banco de México’s InflationReport, October – December 2017. The monthly slack index is based on the first main component of a set of 11indicators. The first component represents 50.6% of the joint variation of monthly indicators. Gray linescorrespond to individual slack indicators used in the analysis of Principal Components.Source: Prepared by Banco de México with data from INEGI and Banco de México.

GDP

GDP excluding oilindustry 2/

FebruaryQ1 2019


1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions




As anticipated, annual headline inflation decreased in Q1 2019 in relation to Q4 2018. This result is explained,fundamentally, by the fall in the non-core inflation component, while core inflation remained high. Nonetheless,in March, headline inflation rose as compared to the previous month and in April such upward trend becamestronger; and, in the first fortnight of May, inflation lied at 4.43%.

Consumer Price IndexAnnual % change

1/ Since 2003, a permanent inflation target of 3%, with a variability interval of +/-1%, was established for headline inflation.Source: Banco de México and INEGI.

6.41

4.43

3.77

0

1

2

3

4

5

6

7

8

9

10

11

12

13

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

CPI

Core

Non-core

1F May

Inflation target 1/

22

Although the significant decline in non-core inflation was largely related to lower variations of energy prices,this behavior has started to revert since the second fortnight of February 2019, pressuring again annual non-core inflation.

-5

0

5

10

15

20

Feb-

16Ap

r-16

Jun-

16Au

g-16

Oct

-16

Dec-

16Fe

b-17

Apr-

17Ju

n-17

Aug-

17O

ct-1

7De

c-17

Feb-

18Ap

r-18

Jun-

18Au

g-18

Oct

-18

Dec-

18Fe

b-19

Apr-

19

-5

0

5

10

15

20

Feb-

16Ap

r-16

Jun-

16Au

g-16

Oct

-16

Dec-

16Fe

b-17

Apr-

17Ju

n-17

Aug-

17O

ct-1

7De

c-17

Feb-

18Ap

r-18

Jun-

18Au

g-18

Oct

-18

Dec-

18Fe

b-19

Apr-

19

Non-core Energy Products

Profit Margin for Energy Product SalesPesos per liter and ratio

1/ In certain cases, the sum of inflation’s components may not add up due to rounding.Source: Calculated by Banco de México with INEGI data.

2/ The margin of each gas station is estimated on a daily basis as the difference between the pricereported by the Energy Regulatory Commission (CRE, for its acronym in Spanish) for each gas stationand the price at Pemex’s wholesale point of sale that is the closest to that gas station. The margin atthe national level is a simple average of the margin of all gas stations in the country except for the gasstations in the Northern border states, which benefited from the fiscal stimuli implemented startingon January 1, 2019. 3/ Refers to the ratio between LP gas consumer price and the price of the first-hand sale (PPI). Source: Prepared by Banco de México with data from INEGI, PEMEX, CRE andBloomberg (Gas LP Mont Belvieu).


1F May

Government-authorized prices

Energy products

Agriculture

Non-core

Non-core and Energy Price Subindex 1/

Annual incidences in percentage points

Electricity

LP gas

Natural gas

Gasoline

Energy products

1F May 1.0

1.5

2.0

2.5

1.0

1.5

2.0

2.5

Dec-

17Ja

n-18

Feb-

18M

ar-1

8Ap

r-18

May

-18

Jun-

18Ju

l-18

Aug-

18Se

p-18

Oct

-18

Nov

-18

Dec-

18Ja

n-19

Feb-

19M

ar-1

9

CPI LP gas / first-hand sales price 3/

Sales margin of Magna-grade gasoline 2/

March

-2

-1

0

1

2

3

4

5

6

7

2016

2017

2018

2019

23

Risks to core inflation are still perceived. In April, it increased and within its components, food merchandiseprices have been increasing while several services have registered high inflation levels. Thus, although coreinflation decreased in the first fortnight of May, it remains at high levels.

Core Inflation Trend MeasuresAnnual % change

MerchandiseAnnual % change

Services excl. Housing and EducationAnnual % change and incidences

in percentage points


Core Price Subindex

Non-food merchandise

1F May

Services excl. housing and education (annual % change)

Tourism

Telecommunications

Food Health and personal care

Rest of services

0

1

2

3

4

5

6

7

8

9

2013

2014

2015

2016

2017

2018

2019

Merchandise

Food, beverages and tobacco

1F May0

1

2

3

4

5

6

2013

2014

2015

2016

2017

2018

2019

Core Price Subindex

Supercore Price Subindex

Trimmed mean Indicator 1/

1F May

1/ The Trimmed Mean Indicator excludes the contribution of extreme variations in the prices of some generic items to the inflation of a price index. To eliminate the effect of these changes, the following is done: i) monthly seasonally adjusted changes of the generic items ofthe price index are arranged from the smallest to the largest value; ii) generic items with the largest and the smallest variation are excluded, considering in each distribution tail up to 10 percent of the price index basket, respectively; and iii) using the remaining genericitems, which by construction lie closer to the center of the distribution, the Trimmed Mean Indicator is calculated. Source: Prepared by Banco de México with own data and data from INEGI.

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions




Monetary policy conduction

To guide its monetary policy actions, Banco de México’s Governing Board followsclosely the development of inflation vis-à-vis its forecasted trajectory, taking intoaccount the time frame in which monetary policy operates as well as availableinformation on all inflation determinants and on medium- and long-term inflationexpectations, including their balance of risks.

It also considers that monetary policy must respond prudently if for any reason theuncertainty faced by the economy increases considerably.

Although headline and core inflation have increased, these developments areconsidered to be transitory and the current monetary policy stance consistent withthe convergence of inflation to its target within the time frame in which monetarypolicy operates.


Monetary Policy Rate and Consumer Price Index% and annual % change

1/ The data shown up to January 20, 2008 corresponds to the overnight interbank interest rate.Source: Banco de México and INEGI.

2

4

6

8

10

12

14

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Target for the overnightinterbank interest rate 1/

May

Headline inflation

1F May

Headline inflation target

26

The target for the overnight interbank interest rate has remained at 8.25% throughout 2019.


2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Jan-

18

Jul-1

8

Jan-

19

2.5

3.0

3.5

4.0

4.5

Jan-

17M

ar-1

7M

ay-1

7Ju

l-17

Sep-

17N

ov-1

7Ja

n-18

Mar

-18

May

-18

Jul-1

8Se

p-18

Nov

-18

Jan-

19M

ar-1

9

For the end of 2019 and 2020 Long term

Source: Banco de México’s Survey (monthly periodicity).

2020

2019

Next 5-8 years

Next 4 years

Inflation target

Citibanamex next 3-8 years

Inflation ExpectationsMedian, %

April

27

Headline inflation expectations for the end of 2019 and for 2020 decreased between December 2018 andMarch 2019 and then were adjusted upwards in April, while core inflation expectations increased. Medium-and long-term inflation expectations showed more stability. Is noteworthy that expectations for all terms haveremained visibly above the 3% target.

Source: Banco de México’s Survey (monthly periodicity) andCitibanamex Survey (biweekly periodicity).

Source: Banco de México estimates with Valmer and Bloomberg data.

Break-even Inflation and Inflation RiskImplied in Bonds

%HeadlineCore

20-day moving average

10-year bond break-eveninflation

MayAprilMay

7.5

8.0

8.5

9.0

9.5

1 1 3 6 1 2 3 5 10 20 30


Nominal Exchange Rate 1/

Pesos per US dollarVolatility-adjusted 3-month Interest RateSpread for Selected Emerging Countries 2/

Index

1/ Observed exchange rate refers to the daily FIX Exchange Rate. Numbers in front ofthe analysts’ expectations correspond to the averages in the Banco de México surveyfor April and the Citibanamex survey for May 21th, 2019.Source: Banco de México and Citibanamex.

28

The more favorable conditions in international financial markets that prevailed since the beginning of January up to thelast part of March, have contributed to improve the performance of financial assets in Mexico. Since late December todate, the Mexican peso registered lower volatility and appreciated considerably. During most of Q1 2019, interest ratesin Mexico declined for all terms, although at the margin they increased slightly.

2/ Brazil, Chile, Colombia, Turkey, South Africa, South Korea and Poland.Source: Bloomberg.

Source: Proveedor Integral de Precios (PiP).

Yield Curve%

17

18

19

20

21

22

23

24

Oct

-16

Dec-

16Fe

b-17

Apr-

17Ju

n-17

Aug-

17O

ct-1

7De

c-17

Feb-

18Ap

r-18

Jun-

18Au

g-18

Oct

-18

Dec-

18Fe

b-19

Apr-

19Observed Exchange Rate

Analysts’ Expectation 2019 Banxico 19.90

Analysts’ Expectation 2020 Citibanamex 20.26Analysts’ Expectation 2020 Banxico 20.34Analysts’ Expectation 2019 Citibanamex 20.00

Jun.29, 18

May 28, 19

Sept.28, 18

Dec.31, 18

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

1.5

2014

2015

2016

2017

2018

2019

Range

Emerging economies’ averageMexico

May May

Months YearsDay

19.17

1

2

3

4

Outline

5

Inflation

Monetary policy





-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4

Observed

Central scenario previous report

Central scenario current report


Fan Chart: GDP GrowthAnnual %, s. a.

s. a. / Seasonally adjusted figures.Source: INEGI and Banco de México.

Economic Activity Outlook

Increase in number of IMSS-insured jobs(Thousands)

Report Oct-Dec 2018 Jan-Mar 2019

2019 620 – 720 530-6302020 650 – 750 650-750

GDP Growth(%)


2019 1.1 – 2.1 0.8-1.82020 1.7 – 2.7 1.7-2.7

2019Q4

2020Q4

2013 2014 2015 2016 2017 2018 2019 2020

Current account deficit

(% of GDP)


2019 2.0 1.92020 2.0 1.9

31Quarterly Report January - March 2019

Risks to GrowthWithin the forecast horizon, the balance of risks for economic activity has become more uncertain and remains biased to the downside.

Upward risks:

Downward risks:

That USMCA is formalized and serves to trigger investment. That the dynamism of industrial production in the United States contributes to improve the performance of Mexican exports. That a greater-than-foreseen dynamism of aggregate demand is observed, due to an increase in consumer spending or that some

productive sectors face better conditions to increase their investments.

That uncertainty arises regarding the possibility of an escalation of trade disputes worldwide. That episodes of volatility are observed in international financial markets. A greater-than-expected slowdown of the world economy and global trade. That the process of ratifying and implementing USMCA is delayed and generates more uncertainty, thus affecting investment. Greater domestic uncertainty that may affect investment and consumption. That the credit rating of Pemex or that of Mexico deteriorate. That the production or distribution of goods and services is affected again.

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4

Observed



-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6


Observed




As for the economy’s cyclical position, slack conditions are expected to remain loose throughout the forecasthorizon.

Output Gap Estimate% of potential output, s. a.

s. a. / Seasonally adjusted figures.Source: Banco de México.

Note: i) The forecast of the current report’s central scenario begins in Q1 2019, while theforecast of the previous report’s central scenario begins in Q4 2018. ii) The expected behaviorof this indicator is consistent with the forecast for the output that excludes the oil sector. iii)It is not feasible to calculate a fan chart for a quarterly slack index because of the nature withwhich the forecast was constructed.Source: Banco de México.

Output Gap Estimate Excludingthe Oil Sector

% of potential output, s. a

Quarterly Slack Index

2013 2014 2015 2016 2017 2018 2019 2020s. a. / Seasonally adjusted figures.Source: Banco de México.

Fan Charts

2013 2014 2015 2016 2017 2018 2019 2020

2019Q4

2019Q4

2020Q4

2019Q4

2020Q4

Forecast2020

Q4

-3

-2

-1

0

1

2

3

-3

-2

-1

0

1

2

3


Observed



2013 2014 2015 2016 2017 2018 2019 2020

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.0

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.0


Observed inflationCentral scenario previous reportCentral scenario current reportHeadline inflation target

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.0

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.0


Observed inflationCentral scenario previous reportCentral scenario current reportHeadline inflation target

Annual Headline Inflation 1/

%


1/ Quarterly average of annual inflation. The next four and six quarters are indicated as of second quarter of 2019, that is, the second and fourth quarters of 2020, respectively, periods in which the monetary policytransmission channels fully operate. */ Forecast since May 2019. Source: Banco de México and INEGI.

4Q 6QNext

Annual Core Inflation 1/

%

Fan chart

4Q 6QNext

2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020

2018 2021Q4 Q1 Q2* Q3 Q4 Q1 Q2 Q3 Q4 Q1

Current 3.7 3.6 3.8 3.6 3.4 3.4 3.0 3.0 3.0 3.0Previous 3.7 3.5 3.6 3.4 3.2 3.2 2.9 2.8 2.7

2019 20202018 2021Q4 Q1 Q2* Q3 Q4 Q1 Q2 Q3 Q4 Q1

Current 4.8 4.1 4.3 4.0 3.7 3.8 3.2 3.1 3.0 3.0Previous 4.8 4.1 4.3 3.8 3.4 3.5 3.1 2.8 2.7

2019 2020

Forecasts for annual headline inflation are adjusted slightly upwards due to previsions of increases in energyprices and to the recent increases in core inflation, particularly, the greater-than-expected increases in the pricesof certain services.

The previous revisions have an influence on short-term forecasts and their effect is considered to be transitory,and thus forecasts show a convergence to Banco de México’s target in Q3 2020. As for core inflation, expectationsare that it will lie at 3% starting Q2 2020.


Upward risks:

Risks to Inflation

Downward risks:

Although there has been an intensification of some downside risk factors, like the greater slack in the economy, there areothers that could make inflation remain at high levels and, therefore, deviate from its foreseen path, given the factorsthat have restrained core inflation from decreasing.

That the peso exchange rate comes under pressure due to external or domestic factors. That greater pressures on energy prices or on agricultural and livestock product prices are observed. That protectionist and compensatory measures escalate globally. That public finances deteriorate. That given the magnitude of the increases to the minimum wage, in addition to their possible direct impact, there is the risk that these

bring about high wage revisions in several sectors.o In fact, in some sectors these have exceeded productivity gains and could give rise to cost pressures, affecting formal employment and

contributing to keep core inflation at high levels, preventing the widening of economic slack from translating into lower pressures on inflation.

That the persistence shown by core inflation leads to a greater resistance to decline of medium- and long-term inflation expectations.

That lower variations in the prices of some non-core items take place. That slack conditions widen more than anticipated.


Final Remarks To address the challenges and lags the Mexican economy faces, it is necessary to adopt and maintain

policies aimed at setting solid foundations for economic growth so as to correct the structural andinstitutional problems that have impeded the country from attaining higher levels of productivity andwhich have also discouraged investment in the country.

Strengthening the rule of law is a priority. Thus, in addition to fighting insecurity and tacklingcorruption and impunity, the competent authorities guarantee legal certainty, compliance with thelegal framework, and respect for private property.

A clear agenda of long-term policy goals aimed at fostering an adequate microeconomic functioning,competition and a more efficient use of resources of the economy is also needed, together with astrong macroeconomic framework characterized by fiscal discipline and price stability wouldcontribute to build certainty and to generate greater confidence in the country.

The above would allow to promote investment, raise productivity and increase the country’s potentialgrowth, thus leading to a greater welfare for all Mexicans.


Annex – Boxes

Evolution of Negotiations Regarding the United Kingdom’s Decision to Leave theEuropean Union (Brexit).

Factors that Might Hinder Mexico’s Economic Growth According to Analysts andBusinesses Opinions.

1

3

Effect of US Tariff Measures Imposed on China on Mexico’s Share in US Imports.

Considerations Regarding Mexico’s 2019 Labor Reform.

2

4

5 Services Inflation and Higher Production Costs in the First Quarter of 2019.

6 Influence of Competition on Gas Stations’ Sales Margins and on Consumer Prices.

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