Post on 02-Jan-2016
Mexico: Economic View and Opportunities
Guillermo Ortiz
June 12, 2015
IMF 2015 Growth Forecasts%
Disappointing Global Economic Growth
Source: IMF*WEO five-year-ahead growth forecasts
China
EM
Japan
Eurozone
US
Advanced
World
0 1.5 3 4.5 6 7.5
7.1
4.9
0.8
1.4
3.12.3
3.8
6.8
4.3
1
1.5
3.1
2.4
3.5
Apr 15Oct 14
70
80
90
100
110
120
130
140
Fall 2007
Fall 2008
Fall 2014
Output Compared to Precrisis ExpectationsIndex, 2007=100
World Advanced Economies
Emerging Markets
0
1.5
3
4.5
6
7.5Fall 2011
Fall 2012
Fall 2013
Fall 2014
Medium-term Growth Expectations*%
1
Divergent Monetary Policies Create Distortions
Source: IIF, Bloomberg, Banorte-Ixe
Jan-15 May-15 Aug-15 Dec-150.0
0.5
1.0
ECB
Fed
BoJ
BoE
AE Central Banks Interest Rates%
2010 2011 2012 2013 20140.0
0.2
0.4
0.6
0.8
1.0
1.2
3.5
4.0
4.5
5.0
5.5
6.0
6.5AE
EM (rhs)
EM excl. Brazil, Russia, and Ukraine
Trends in Official Policy Rates%
Sovereign Bond Yields in Local Currency% as of May 29, 2015
1Y 2Y 5Y 10Y 20Y 30Y
US* 0.25 0.60 1.47 2.09 2.47 2.85
UK 0.48 0.51 1.34 1.81 2.38 2.54
Switzerland -0.97 -0.96 -0.55 -0.08 0.34 0.53
Germany -0.25 -0.23 0.00 0.49 0.94 1.11
France -0.18 -0.18 0.15 0.79 1.32 1.58
Spain 0.02 0.02 0.78 1.83 2.71 2.85
Portugal 0.02 0.11 1.31 2.55 3.28 3.43
Greece* 11.47 22.95 15.10 11.06 9.19 n.a.
* With linear interpolation in some nodes as the benchmark bond is not currently outstanding.
2
Greek's Bonds Maturing in 2015Billion, Euro
Brent and WTI Prices $/barrel
Lower Oil Prices and Geopolitical Tensions
Mar Apr May Jun Jul Aug Sept Oct Nov Dec0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
ECB
IMF
Bonds and bills
Strong debt ma-turity episodes this summer
Jan-14 May-14 Sep-14 Jan-15 May-1540
50
60
70
80
90
100
110
120
Brent
WTI
Source: Bloomberg, Banorte-Ixe 3
20
22
24
26
28
30
32
34
36
Mexico
Latin America
Mexico and Latin America GDP per capita relative to the US%, GDP per capita in 1990 US$*
Source: Conference Board Total Economy Database* converted at Geary-Khamis Methodology (1970), Sample of 17 countries, the region was calculated as population-weighted averages
Mexico's Economic Convergence
1950-1970s: Strong period of
growth.
1980s: "The lost Decade"
1990-2012:
NAFTA Agreement
94 Financial Crisis
Strengthening of macro
fundamentals
China joined the WTO
(2001)
2013-… Structural reforms
4
6
Range in Regional GDP per Worker% of national average 2010
Source: OECD, Regions at a Glance 2013
Regional GDP Growth: 1995-2010% annual average growth rate (constant 2005 USD PPP)
Regional Productivity Differentiation
Higher than 10%Between 7% and 10%Between 3.5 and 7%Between 1.5% and 3.5%Between 0% and 1.5%Lower than 0%Data no available
5
7
Strong Macroeconomic Fundamentals
Fiscal Deficit% of GDP 2014
Source: Banorte-Ixe, IMF, CNBV, Banxico, Ministry of Finance
Capitalization Index for Commercial Banking%
2008 2009 2010 2011 2012 2013 201414
15
16
17
15.3
16.516.8
15.716
15.5 15.5
International Reserves and IMF's FCLUSD billion
Flexible Credit Line
International Reserves
Net Public Sector Debt% of GDP (LHS), years (RHS)
0
5
10
15
20
25
30
35
40
0.0
1.0
2.0
3.0
4.0
5.0
6.0Domestic ExternalDuration
18.618.621.8
17.5
21.2
30.31.133.2
35.038.3
33.1
30.5
80%
20%
70%
30%
Jan-08 Jan-10 Jan-12 Jan-140
50
100
150
200
250
Flexible Credit Lline
International Reserves
Germany
Mexico
France
US
UK
Spain
Brazil
Japan
-1.5 -0.5 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5
-0.6
3.2
4.2
5.3
5.7
5.8
6.2
7.6
6
8
18991905
19111917
19231929
19351941
19471953
19591965
19711977
19831989
19952001
20072013
-40
10
60
110
160
210
260
Exchange rate (USD/MXN) CPI inflation 28-day interest rate
The Result of Stronger Fundamentals
Exchange rate, CPI Inflation and Interest Rate%, USD/MXN
Source: Banxico 7
9
No External Imbalances and Resilience Against Shocks
External Accounts Indicators
External
Debt*
Short-term External Debt*
Current Account
FDI 2013
% GDP % GDP
% Reserves
% GDPUSD
bUSD b
Brazil 21.8 2.5 14.4 -4.2 -90.9 80.8
India 23.4 5.0 35.6 -1.6 -34.0 28.2
Indonesia 29.8 8.9 68.0 -2.9 -25.0 23.3
South Africa
44.0 9.6 79.3 -5.6 -19.7 8.1
Turkey 46.7 15.8 113.2 -5.5 -44.9 12.9
Mexico 20.1 3.1 20.3 -2.0 -25.8 44.1
Source: Bloomberg, Banorte-Ixe, JP Morgan, World Bank, Promexico* Considering public and private external debt
Exchange RateIndex, may 2013=100
May-13 Nov-13 May-14 Nov-14 May-15100
110
120
130
140
150
160
170MXN
BRL
TRY
INR
IDR
ZAR
8
10
Current Account Deficit and Inflation Relative to Target
EM Internal and External Balance Scores
Source: Goldman Sachs Global Investment Research 9
11
Mexico's Strong Trade Patterns
US EU Canada China Brazil0
20
40
60
80 78.9
5.2 2.7 1.7 1.4
Mexican Exports by Main Destination%
Source: WTO, Banorte Ixe*Estimations after 2008
MEX
MEX
BRA
BRA
URU
URU
COL
COL
CHI
CHI
PER
PER
ARG
ARG
ECU
ECU
VEN
VEN
0 10 20 30 40 50 60 70 80 90 100
Fuels
Mining
Agriculture
Manufacturing
Latin America's Exports by Merchandise% of total exports
10
12
Wage Differential*USD, wages per hour
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
China
Mexico
Forecast
Source: WTO, ILO, US Census Bureau, Banxico, Bloomberg Banorte Ixe*Estimations after 2008
8
9
10
11
12
13
9.5
10.1
10.6
11.0
11.611.5
10.7
10.2
9.8
10.210.4
10.0
11.2
11.911.6
12.1
12.412.5
China joins the WTO
Participation in US Imports% of total imports
Higher External Competitiveness
11
13
Capacity to Produce Advanced Manufacturing
Mexican Light Vehicle Production Millions of Units
2008 2009 2010 2011 20120.0
0.5
1.0
1.5
2.0
2.5
3.0
2.1 2.22.5
2.8
1.5
For Export Purposes Domestic Sales
Aerospace Companies established in Mexico #
Source: ProMéxico, Banorte-Ixe, OECD**Data until 3Q2014, * FDI Forecast
2005 2006 2007 2008 2009 2010 2011 20120
50
100
150
200
250
300
61
67
120
193
199
238
249
270
Mexican IT Industry Exports %, growth YoY
2012
2011
2010
2009
2008
2007
2006
0 5 10 15 20 25 30
12.25
19
12
17
26
26
14
Foreign Direct Investment $, Billions
2008 2009 2010 2011 2012 2013 2014 2015* 2008-2014**
FDI 28.7 18.0 25.9 23.6 18.9 44.1 22.5 28.4 181.1
Engineering Graduates
Mexico Germany
In 2012 95,832 73,536
12
15
Structural Reform
1993 1997 2000 2006 2007 2012 2013
NA
FTA
Sie
fore
s/A
fore
s
Bu
dg
et &
fisc
al r
esp
on
sib
ilit
y la
w
Pu
bli
c p
ensi
on
sys
tem
ref
orm
Eco
no
mic
co
mp
etit
ion
law
Go
vern
men
t ac
co
un
tin
g r
efo
rm
Pen
al P
roce
du
res
Ref
orm
Ed
uc
atio
n r
efo
rm
Ban
xic
o’s
au
ton
om
y
Inju
nct
ion
Act
Fis
cal
ref
orm
Ban
k-L
end
ing
ref
orm
En
erg
y re
form
Lab
or
Mar
ket
refo
rm
Tele
com
mu
nic
atio
ns
refo
rm
Ele
cto
ral
refo
rm
14
Population that finished upper-secondary school(%, share of total, ages 25-64)
Education Reform
Poor education performance
Source: OECD Education at a Glance 2012
China
South Africa
Portugal
Brazil
Spain
Greece
Belgium
Chile
New Zealand
OECD average
Luxembourg
Norway
Austria
Germany
Sweden
Canada
United States
Czech Republic
0 10 20 30 40 50 60 70 80
74
56
36 Mexico
Peru
Colombia
Tunisia
Uruguay
Kazakhstan
Chile
Romania
Serbia
Slovak Republic
Sweden
Iceland
Spain
United States
OECD average
France
United Kingdom
Australia
Viet Nam
Poland
Liechtenstein
Chinese Taipei
Hong Kong-China
MathReading Science
53 Mexico
Chile
16
Public spending on education (% GDP)
Education Reform: It is not a matter of public spending…
Source: OECD Education at a Glance 2012
Undereducated Populationindicators for OECD countries
The Teachers' Union strongly influences the expenditure on education.
13% of all people registered on the schools’ payroll do not turn up to work.
Among OECD countries, Mexico spends the second highest amount of current expenditure to compensate staff (91.7%).
Indonesia
Japan
Czech Republic
G20 average
Germany
Russian Federation
Hungary
Korea
Mexico
Netherlands
United Kingdom
OECD average
Switzerland
Austria
Israel
Ireland
New Zealand
Finland
Sweden
Denmark
0 1 2 3 4 5 6 7 8
5.4
Brazil
Argentina
Mexico5.0
4.4
Chile
17
19
Bank-Lending Reform
Bank Penetration% of GDP
Mexico: Companies with credit in 2012*% of total
Total Micro Small Medium Large0
10
20
30
40
50
60
7.4 6.5
29.2
39.6
52.6
Source: National Council of Financial Inclusion (2013), Banorte-Ixe, World Bank, Banxico
Objetive: Increase bank penetration in Mexico aiming to achieve the democratization of high productivity among companies and facilitate consumption smoothing for individuals from all social levels
Main points: Improve enforcing contracts processes for commercial banks, SME guarantees programs for Development banks and non-bank banks regulation
Bank penetration in Mexico% GDP
Mexico
Peru
Colombia
Brazil
Chile
0 25 50 75
16.2
23.1
41.4
45.5
72.0
05
1015202530354045
16.2
40Forecast
18
22
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15-15
-10
-5
0
5
10
-40
-30
-20
-10
0
10
20
30
40
50
60
2.9
-11.2
0.5
-4.3
-11.8
CPI Fixed-line phoneCable TV InternetMobile phone
CPI, Phone, Cable TV, Internet Sub-indexes% annually
Reforms are Starting to Work
Lower phone tariffs.
AT&T purchased Nextel and Iusacell.
Televisa internet and phone service for
less than USD$30.
Telmex new internet and phone
scheme of USD$22.
Positive Consequences
21
24
The Economy is Recovering: External Demand and Consumption
Feb-09 Feb-11 Feb-13 Feb-15-15.0
-10.0
-5.0
0.0
5.0
10.0
1.6
Source: Banorte-Ixe, INEGI
Industrial Production% annually
Retail Sales% annually, 3mma
Manufacturing Construction Production% annually
Feb-11 Feb-13 Feb-15-10
-5
0
5
10
4.0
1.1
Manufacturing
ene-09 ene-11 ene-13 ene-15-6
-4
-2
0
2
4
6
2.77598133392107
23
25
What to Expect in 2015
Inflation forecast%yoy
Dec-13 Jun-14 Dec-14 Jun-15 Dec-152.0
3.0
4.0
5.0
3.0
Forecast
Banxico's inflation target
Mexico 2015 GDP forecast%yoy
Source: Banorte-Ixe, INEGI
Ex
tern
al d
em
an
d
Fis
ca
l Re
form
...
Pu
blic
sp
en
din
g...
Oil
pro
du
cti
on
To
tal
1.3
3.2
1.0
1.0 -0.1
24
26
Conclusions
The global context appears to be less supportive than in the past, with lower global growth forecasts.
Mexico has been able to strengthen macroeconomic fundamentals, which has improved the country's resilience against shocks.
Mexico has developed significant trade competitiveness.
The next step is to increase productivity and eliminate the “dual” economy. Therefore moving forward with the structural reform agenda is
fundamental. In addition, the next most important reform is to strengthen the "Rule
of Law"
The economy is starting to recover driven by the external demand and domestic consumption.
The outlook for the Mexican economy seems promising for 2015 and for the longer run.
25