The Mexican Economy: Now and in the Future

Transcription

1 Manuel Sánchez BBVA Investor conference "LATAM: Growth at your fingertips" Milan, Italy, May

2 Index 1 Structural strengths 2 Recent developments and outlook 3 Long term opportunities 4 Consolidation of price stability

3 Mexico has a large and well diversified economy GDP of US$1.2 trillion 11 th largest economy in the world based on PPP 2 nd largest economy in Latin America Middle income country PPP adjusted per capita annual income of US$14,610 Economy oriented to services and industry which respectively account for 65% and 30% of GDP Highly open economy, free trade agreements with 43 countries High productivity standards, especially in manufacturing Note: Figures correspond to PPP at current international dollars for Source: IMF (2012), World Economic Outlook, April and INEGI 3

4 Its youthful labor force and education potential represent a source of comparative advantage Working age population accounts for 64% of the total Average schooling of 8.6 years Dependency ratio of 0.55, tending to boost savings and investment in human capital Note: Figures correspond to Working age population is defined as persons aged years. Dependency ratio is an age population ratio of those typically not in the labor force (ages under 15 and over 64) and those typically in the labor force (ages 15 to 64). Average schooling is the years of formal schooling received, on average, by persons over age 15 Source: Working age population and dependency ratio are based on data from INEGI and average schooling is directly from INEGI 4

5 Mexico is a leading exporter of several manufacturing products such as automobiles and TV sets World Exports of Automobiles Billions of dollars, 2010 World Exports of Television Sets Billions of dollars, Germany Japan USA Canada Korea UK Spain Belgium Mexico France 0 Mexico China Slovakia Poland Hungary Malaysia Czech Rep USA Korea Turkey 0 Source: Trade Map, International Trade Centre UNCTAD/WTO (ITC) Source: Trade Map, International Trade Centre UNCTAD/WTO (ITC) 5

6 Mexico s economic environment is business friendly Most sectors are open to private investment Government intervention in entrepreneurial activities is low Business and market regulation is moderate The macroeconomic context is stable 6

7 The pillars of macroeconomic stability are sound public finances, low inflation and a strong banking system Public debt 37.3% of GDP Fiscal deficit 2.5% of GDP Annual inflation 3.4% Net capital/rwa 15.7% Non performing loans/total 2.5% Provisions/NPL 189.6% Note: Figures correspond to 2011, the average for inflation, and end of period for public debt and the banking system Source: Banco de México and SHCP 7

8 Mexico s perceived sovereign risk has recently been lower than that of some developed countries Credit Default Swaps 5 years, basis points France Mexico May 03 Nov 03 May 04 Nov 04 May 05 Nov 05 May 06 Nov 06 May 07 Nov 07 May 08 Nov 08 May 09 Nov 09 May 10 Nov 10 May 11 Nov 11 May 12 Source: Bloomberg 8

9 Yet, the task of stability is continuous and needs to be consolidated Fiscal reform The efficiency of public revenues Stabilization funds Expenditures focused on public goods, e.g., security and infrastructure Convergence to inflation target Enhance regulatory and supervisory framework of the financial system Basel principle based rules 9

10 Mexico is a significant recipient country of foreign direct investment Rank Foreign Direct Investment Stock End 2011, trillions of dollars US China France UK Germany Brazil Russia Mexico Source: CIA, World Fact Book 10

11 Index 1 Structural strengths 2 Recent developments and outlook 3 Long term opportunities 4 Consolidation of price stability 11

12 After a sharp recession in 2009, Mexico has undergone a continuous process of economic recovery Economic Activity Indicators 2003 = 100, s.a. Manufacturing Production 2008=100; s.a. Total 1/ Services 1/ Industrial Production US Mexico Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun / Figures correspond to the Global Economic Activity index which incorporates economic sectors with an 87.4% coverage of annual GDP. Therefore, growth rates can differ from those of GDP Source: INEGI Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Source: INEGI Mar 08 Jul 08 Nov 08 Mar 09 Jul 09 Nov 09 Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar

13 A driving force has been the resurgence of external demand, especially through manufacturing exports Manufacturing Exports 2007=100, s.a. Total Automotive Non automotive Source: Banco de México Mar 08 Jul 08 Nov 08 Mar 09 Jul 09 Nov 09 Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Mar 08 Jul 08 Nov 08 Mar 09 Jul 09 Nov 09 Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Total U.S. Rest of the world Source: Banco de México

14 Domestic demand has also posted significant growth rates Commercial Establishment Sales 2003 = 100, s.a. Gross Fixed Investment 2003 = 100, s.a Wholesale Retail Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Source: INEGI Source: INEGI 14

15 which have been supported by job creation and the expansion of bank lending Formal Employment* Millions of workers Real Commercial Banks Performing Loans 2007= Consumer Mortgage Commercial Total Apr 08 Aug 08 Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 */ Workers insured by the Mexican Social Security System (IMSS) Source: IMSS Apr 12 Mar 08 Jul 08 Nov 08 Mar 09 Jul 09 Nov 09 Mar 10 Source: Banco de México Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 15

16 The improvement of global financial conditions has resulted in large capital inflows Government Securities Holdings* Billions of nominal pesos Foreign investors Pension Funds 1, Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 */ Includes CETES and fixed rate bonds Source: Banco de México 16

17 which partly explain downward shifts of the yield curve and the relative strengthening of the currency Mexico: Yield Curve End of year, % Exchange Rate 2008=100, Pesos/USD Nominal Real * Appreciation day 1 month 3 month 6 month 1 year 2 years 3 years 5 years 7 years 10 years 20 years 30 years Apr 08 Aug 08 Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 */ May 4, 2012 Source: Banco de México Source: Banco de México The Mexican Economy: Outlook and Challenges 17

18 The Mexican economy is expected to continue growing at a stable, moderate pace GDP Annual growth, % F 2013 F 2014 F World U.S Mexico Source: IMF (2012), World Economic Outlook, April 18

19 Index 1 Structural strengths 2 Recent developments and outlook 3 Long term opportunities 4 Consolidation of price stability 19

20 However, Mexico could clearly increase its growth potential by enhancing its total factor productivity Key elements behind lagging productivity Insufficient competition in crucial economic areas Widespread informality Inadequate levels of technology, investment and highskilled labor, and inefficient allocation of resources 1 1/ Sánchez, M. (2012) "Economía mexicana: una mirada de largo plazo", 20

21 The agenda for pending reforms is ample and promising Deregulate and simplify requirements for business operations ducto Remove legal obstacles to labor market flexibility and competition in the markets for inputs and services, including education 1 Strengthen the rule of law 1/ Botero, J. C., S. Djankov, R. La Porta, F. Lopez de Silanes y A. Shleifer, (2004), The Regulation of Labor, Quarterly Journal of Economics 119(4):

22 Index 1 Structural strengths 2 Recent developments and outlook 3 Long term opportunities 4 Consolidation of price stability 22

23 Since 2001, monetary policy has adhered to a formal inflation targeting regime 3% inflation target measured by the headline CPI index Gradual stabilization process to minimize possible social costs Accountability in terms of the commitment to the target Stabilization of inflation expectations around the target is a challenge Transparency and communication by the central bank key to the effectiveness of monetary policy 23

24 The convergence of inflation to the target is a very close and attainable result Headline Inflation CPI annual change, % % current target 10 0 Oct 95 Apr 96 Oct 96 Apr 97 Oct 97 Apr 98 Oct 98 Apr 99 Oct 99 Apr 00 Oct 00 Apr 01 Oct 01 Apr 02 Oct 02 Apr 03 Oct 03 Apr 04 Oct 04 Apr 05 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Source: INEGI and Banco de México 24

25 Banco de México will continue to monitor risks to convergence toward the permanent 3% target Increased global financial volatility Upsurge of international prices of commodities and food Demand pressures 25

26 Conclusions Mexico has a large and diversified economy, young workers, high educational potential and a friendly business environment Mexican financial stability, a continuous task, rests on sound public finances, low inflation and strong banks Despite Mexico s ongoing strong economic recovery, reform efforts are needed to overcome informality and obstacles to competition in order to enhance long term growth potential Convergence to the inflation target is very close and attainable Banco de Mexico will continue to monitor risks to the permanent 3% target 26

27 Mejoran las perspectivas económicas mundiales 27