Overview of the Mexican Economy

Transcription

1 Overview of the Mexican Economy Alejandrina Salcedo Banco de México U.S.-Mexico Manufacturing: Back in the Race Federal Reserve Bank of Dallas, El Paso Branch October 9 th,

2 I External Conditions II Inflation Economic Activity IV Outlook and challenges 1

3 The international economic environment has become even more challenging. In particular, global economic growth has been lower than expected. World GDP Growth Annual percentage change, s. a. Emerging World Global Economic Growth Forecasts Annual percentage change April Observed Forecast April April April 4.0 Advanced -2 April s. a./ seasonally adjusted. Note: The sample of countries represents 86.1% of the world s GDP measured by purchasing power parity. Source: Elaborated by Banco de México with data from Haver Analytics. Source: IMF. 2

4 Commodity prices, particularly oil prices, are well below the levels seen in recent years and are expected to remain low. CRB 1/ Commodities Index Index 31-dic-2007=100 CRB Index Evolution of Selected Crude Oil Prices Dollars per barrel Brent October WTI CRB Index without CRB Index Energy without Energy October Mexican Mix Source: Bloomberg. 1/ The CRB Index of Thomson Reuters is composed of 19 commodities, which are divided in 4 groups: energy (39%), agricultural (41%), precious metals (7%) and industrial metals (13%). Its subcomponent, CRB without energy, is composed of 15 commodities which are divided in 3 subgroups: agricultural (67%), precious metals (12%) y and industrial metals (21%). Source: Bloomberg. 3

5 Financial markets volatility has increased, mainly reflecting the uncertainty that prevails about the timing and pace of future increases in the FED s policy rate. Aug 2007: US mortgage crisis begins. Evolution of the Implicit Volatility Index of the S&P500 (VIX) 1/ Percentage Aug : S&P downgrades US credit rating. Sep : Lehman Brothers declares bankruptcy. May : European debt crisis. Aug : Uncertainty over China s economic performance October 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. 4

6 In this environment, emerging markets currencies have depreciated significantly. Emerging Economies: Nominal Exchange Rate against USD Index 01-Jan- = Depreciation Brazil Colombia 160 South Africa Chile Mexico Korea October 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 Source: Bloomberg. 5 5

7 I External Conditions II Inflation Economic Activity IV Outlook and challenges 6

8 Inflation in Mexico is at minimum historical levels. The currency depreciation has not visibly impacted it. Consumer Price Index Annual percentage change Non-Core Core Headline 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 Source: Banco de México and INEGI. */ Information up to september. 7

9 There seems to be some pass-through from the exchange rate to prices of durable goods, although there is no evidence of transmission to other prices in the economy. Merchandise Core Price Index Annual percentage change 9 Services 9 Non Durable Goods Merchandise Education Services Other Services Housing Durable Goods Source: Banco de México and INEGI. */ Information up to september. 8

10 Inflation expectations remain well anchored. Annual Headline Inflation Expectations Median, % Next 4 Years Next 5-8 Years End of End of Variability Interval September Source: Banco de México Survey. 9

11 I External Conditions II Inflation Economic Activity IV Outlook and challenges 10

12 The Mexican economy has continued to grow at a moderate pace. Gross Domestic Product Annualized quarterly % change, s.a. 12 Economic Activity Indicators Index = 100, s. a Services Industrial production Total IGAE II Agricultural July s. a. / Seasonally adjusted data. Source: Mexico s System of National Accounts, INEGI. s. a. / Seasonally adjusted data. Source: Mexico s System of National Accounts, INEGI. 11

13 While manufacturing shows a positive growth trend, mining has been a drag for industrial activity and construction has remained subdued. Industrial Activity Index = 100, s. a. Electricity Manufacturing Industrial Activity Construction Mining 90 July 85 s. a. / Seasonally adjusted data. Source: Mexico s System of National Accounts, INEGI. 12

14 Production of crude oil has experienced an important reduction. Production Platform of Crude Oil Thousand barrels per day average: 2,548 tbd average: 2,522 tbd average: 2,429 tbd September 2,600 2,550 2,500 2,450 Jan-Sep average: 2,264 tbd 2,400 2,350 2,300 2,250 Accident 2,200 Jan Mar May Jul Sept Nov Jan Mar May Jul Sept Nov Jan Mar May Jul Sept Nov Jan Mar May Jul Sept Source: Pemex. 2,

15 Transport equipment production remains the main driver of manufacturing. Manufacturing GDP Index = 100, s.a. Production of Light Vehicles Thousand units, s.a. annualized 190 3,600 Transport Equipment 170 3,300 3, , ,400 Total 2,100 Rest ,800 1,500 II- 70 September 1, I- - I- - I- - I- - I- - I- - I- - I- Source: INEGI. s. a. / Seasonally adjusted data. Source: Banco de México with information from AMIA. 14

16 The performance of the automotive industry has been strong in recent years and is posed to continue that way. 1 0 % 9 0% 8 0% 7 0% 6 0% 5 0% 4 0% 3 0% 2 0% 1 0% 0 % Share of Imports from Mexico in total U.S. Automotive Imports % H 1H Chrysler Light Vehicles Production and Installed Capacity Thousands units, s.a. annualized Installed Capacity VW Ford Kia Mazda Honda Toyota Mazda Nissan Chrysler Ford GM Production* BMW Nissan-Mercedes Benz VW Nissan-Infiniti Kia 2016 Audi 2017 Kia Toyota ,400 4,840 4,280 3,720 3,160 2,600 2,040 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 with information from AMIA. Installed Capacity estimation based on press releases of assemblers and news. 15

17 Exports lost some dynamism mainly because of weak performance of manufacturing in the U.S., given that manufacturing exports from Mexico are still tightly linked to U.S. industrial production. Manufacturing Exports Index = 100, s.a. Automotive Total U.S. Industrial Production and Mexico s Manufacturing Exports to the U.S. Index -II=100, s. a. U.S. Industrial Production (Before revision of July ) Mexico s Manufacturing Exports to the U.S Non Automotive August Source: SAT, SE, Banco de México, INEGI, Balanza Comercial de Mercancías de México and SNIEG U.S. Industrial Production (Revised) II- s.a. / Seasonally adjusted data. Source: Federal Reserve Board and Banco de Mexico with information from SAT, SE, INEGI, Balanza Comercial de MercancíasdeMéxico and SNIEG

18 Indeed, there is a high correlation between U.S. and Mexico s manufacturing sectors. Manufacturing Production of the U.S. and Mexico Annual percentage change, s.a. Total Mexico's Production US Production US Production (previous) Non-Automotive Mexico's Production US Production US Production (previous) Automotive Mexico's Production US Production US Production (previous) II - Quarter I- I- I- I- I- I- I- I- -20 II - Quarter I- I- I- I- I- I- I- I- -20 II - Quarter I- I- I- I- I- I- I- I- -50 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. 17

19 Consumption and investment are growing at a steady pace. Monthly Indicator of Private Consumption in the Domestic Market and Retail Sales Index =100, s. a. Private consumption Investment and its Components Index =100, s. a. Machinery and Equipment Total Retail sales Construction July July 60 s. a. / Seasonally adjusted data. Source: INEGI. s. a. / Seasonally adjusted data. Source: Mexico s System of National Accounts, INEGI. 18

20 The labor market still shows some slack. National Unemployment Rate % of LFP, s. a. 7 Average Nominal Wage of Salaried Workers Annual percentage change August 3 II I I 2007 I I I I I I I I -1 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. 19

21 I External Conditions II Inflation Economic Activity IV Outlook and challenges 20

22 Outlook for the Mexican economy. Annual Headline Inflation 1/ % 7.0 Gross Domestic Product Annual % change, s.a. 7 Observed Headline Inflation Target Variability Interval s. a. / Seasonally adjusted data 1/ Quarterly average of annual headline inflation. Source: Quarterly Report April - June, Banco de México s. a. / Seasonally adjusted data Source: INEGI and Quarterly Report April - June, Banco de México 21

23 Risks to the Growth Outlook: Upward: A greater dynamism of the exports sector, given a greater than expected recovery of external demand and a real exchange rate depreciation. Rapid. progress in the implementation of structural reforms and in the strengthening of the rule of law. Downward: That manufacturing exports keep registering a low dynamism, if the U.S. industrial sector maintains a week performance. A deterioration in investors outlook. A delay in the recovery of the national oil production in Mexico. A further increase in international financial markets volatility. 22

24 U.S. Economic Forecast. US GDP Forecasts Annual percentage change US IPIUS Forecasts Annual percentage change US Industrial Production Index Annual percentage change, s.a % September mar-13 jan-14 mar-14 may-14 jul-14 sep-14 nov-14 jan-15 mar-15 may-15 jul-15 sep September mar-13 jan-14 mar-14 may-14 jul-14 sep-14 nov-14 jan-15 mar-15 may-15 jul-15 sep Source: Blue Chip. Source: Blue Chip. s. a. / Seasonally adjusted data. Source: Federal Reserve Board and Blue Chip. 23

25 Challenges for the Mexican Economy ❶ Given the complex international environment, it is key to preserve a solid macroeconomic framework. ❷ The strength of institutions is crucial to back a good functioning of the economy. For this reason Mexico should make an additional effort to strengthen the institutions and the rule of law. ❸ In order to achieve higher and sustainable growth rates, it is necessary to increase investment and productivity, which, in turn, requires clear progress in the implementation of structural reforms. Recent developments, like the auctions of oil fields and changes in telecommunications prices and retail conditions, suggest such implementation is starting to bear fruit. 24

26 Global Competitiveness Index Mexico 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 1 Countries evaluated above Mexico Countries evaluated under Mexico Mexico's Position Institutions Infrastructure Macrooeconomic Enviroment Heallth and Primary Eudcation Higher Education and Training Goods Market Efficiency Labor Market Efficiency FInancial Markets Development Technological Readiness Market Size Business Sophistication Innovation Global Competitiveness Index Mexico s Ranking* 1) -: 61 2) -2016: 57 * 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 - and -2016, World Economic Forum. 25

27 The timely and adequate implementation of growth enhancing reforms is crucial to achieve high and sustainable economic growth rates. ❶ Labor ❷ Education ❸ Competition ❹ Telecommunication ❺ Energy ❻ Financial Improve human capital Efficient resource allocation Adoption of new technologies Increased investment A proper implementation of the reforms should boost productivity ❼ Transparency ❽ Anti- corruption 26