the mexican economy: tackling the problems · 1 2 3 two short-term challenges the economic outlook...
Post on 08-Aug-2019
213 Views
Preview:
TRANSCRIPT
Bank of Japan, Tokyo, March 31, 2015
The Mexican Economy: Tackling the problems
Manuel Sánchez
1
2
3
Two short-term challenges
The economic outlook
The problem of long-term growth
Contents
The Mexican Economy: Tackling the problems 2
3The Mexican Economy: Tackling the problems
Despite the modernization of the last few decades, Mexico’s long-term economic performance has been less than stellar
1/ GDP per capita at current dollars in 2014 was US$10,837Source: Penn World Table 8.0
0
10,000
20,000
30,000
40,000
50,000
60,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
South Korea
China
Mexico
Singapore
GDP per capita at chained PPPs1
2005 U.S. dollars
4The Mexican Economy: Tackling the problems
The key problem is stagnant total factor productivity
Mexico: Growth accounting from 1981 to 20131,2
Annual average % change
1/ Own calculations with data from the World Development Indicators, International Financial Statistics, ConferenceBoard Total Economy Database and data and theory from Kehoe, T.J. and F. Meza, (2011), “Catch-up Growth Followedby Stagnation: Mexico, 1950-2010,” Latin American Journal of Economics, 48(2)2/ Sums might not be equivalent to totals due to rounding
0.70
0.03
0.65-0.51
0.81
Working-age populationas % of the total
Hours worked as % ofworking-age population
Contribution to capital Total factor productivity GDP per capita
Contribution to labor
5The Mexican Economy: Tackling the problems
Mexico has undertaken an ample reform agenda in the aim of tackling this problem
Reforms encompass many sectors, including
Labor
Education
Financial system
Telecommunications
Energy
The general objective is to promote greater market flexibility, investment in both human and physical capital, and competition
6The Mexican Economy: Tackling the problems
The telecoms reform seeks to widen access to services atlower prices
FDI caps have been lowered, operators can now offer a broad basket of services, and two new national digital TV networks are in the works
Customer mobility is facilitated across telecoms operators
A price restriction is imposed on all telephony operators in the elimination of national long distance fees
An asymmetric regime applies to dominant telecoms and broadcasting players in order to level the playing field
The reform has yielded benefits, with an already declining trend in relative telecoms prices deeper, and greater variety in packages offered
7The Mexican Economy: Tackling the problems
The energy reform allows private participation invirtually all aspects of the sector
Contracts to govern upstream oil and gas activities, and permits to be granted for middle and downstream undertakings
Permits conceded to generate, sell and import electricity
Recent progress:
Two auctions announced for oil exploration and extraction
Two contracts awarded to deliver gas in private pipelines
The first permit granted to import electricity connected to the National Electric System
Investment, production efficiency and lower domestic energy prices are expected
8The Mexican Economy: Tackling the problems
Deep-seated results from the reforms requirefundamental conditions
Good-quality implementation in the sense of actually producing greater market flexibility, investment and effective competition
Complementary policies
A strengthened rule of law
Further investments made in physical infrastructure
Enhanced public security
1
2
3
Two short-term challenges
The economic outlook
The problem of long-term growth
Contents
The Mexican Economy: Tackling the problems 9
The Mexican Economy: Tackling the problems
The first challenge comes from lower oil prices anddeclining production
10
Mexico: Price for the Mexican oil mix and crude productionDollars per barrel, 3-month moving average; millions of barrels on a daily basis, trend
2.0
2.5
3.0
3.5
20
40
60
80
100
120
140
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Mexican oil mix price
Crude production (right axis)
Source: Bloomberg and INEGI
11The Mexican Economy: Tackling the problems
… which have weakened the public-sector financialposition
Mexico: Oil-related public revenues
Source: Haver Analytics
-40
-20
0
20
40
10
20
30
40
50
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
% of total revenue Annual real change (right axis)
12The Mexican Economy: Tackling the problems
The government has sent investors a sign of fiscalresponsibility
Proactive spending cuts announced amounting to 0.7 percent ofGDP
Austerity measures taken across government ministries and thestate oil and electricity companies
Some investment projects cancelled or postponed
The above despite the fact 2015 budgeted oil revenue is almostfully hedged
The Mexican Economy: Tackling the problems
Although still important for the government, oil accountsfor a declining share of Mexico’s total exports and output
13
Mexican oil indicators
*/ January-February, except oil production, which is to JanuarySource: Banco de México, Haver Analytics and INEGI
2004 2014 2015*
Mexican oil mix priceDollars per barrel, daily average
31.1 87.7 43.0
Oil productionMillion of barrels per day, average
3.4 2.4 2.3
Oil and gas extraction% of GDP
9.1 5.9 n.a.
Oil exports% of total exports
12.6 10.8 7.3
Oil trade balanceMillions of dollars
12,434 1,489 -1,423
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
December 2014 median FOMC forecast
March 2015 median FOMC forecast
Implied forward overnight rate
December 2014 FOMC forecast interval――
March 2015 FOMC forecast interval――
14The Mexican Economy: Tackling the problems
The second challenge stems from future U.S. monetarynormalization, the pace of which remains highly uncertain
1/ As of March 20, 2015Source: Bloomberg with calculations by Banco de México
Federal Reserve: Implied forward overnight rate and FOMC fed funds rate forecasts
%
1
15The Mexican Economy: Tackling the problems
The Mexican peso has been hit by international volatility mainly reflecting broad dollar strength
1/ The DXY is a weighted average of the dollar's value relative to the euro (57.6%), Japanese yen (13.6%), pound sterling (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%), and Swiss franc (3.6%)Source: Own calculations based on a first difference of logarithms linear regression with Bloomberg data
Mexico: Changes in MXN/USD rate explained by oil prices and the U.S. dollar%
0
10
20
30
40
50
60
70
800
3-S
ep
-14
18
-Se
p-1
4
03
-Oct
-14
18
-Oct
-14
02-
No
v-1
4
17-
No
v-1
4
02
-Dec
-14
17
-Dec
-14
01
-Jan
-15
16
-Jan
-15
31
-Jan
-15
15
-Fe
b-1
5
02
-Mar
-15
17
-Mar
-15
WTI
DXY1
16The Mexican Economy: Tackling the problems
The yield curve has shifted upward, largely along withthat of the United States
Government securities yield curve1
%
1/ Solid line, April 30, 2013. Dotted line, March 27, 2015Source: Banco de México and U.S. Treasury
0
1
2
3
4
5
6
71
-mo
nth
3-m
on
th
6-m
on
th
1-y
ear
2-y
ear
3-y
ear
5-y
ear
7-y
ear
10
-yea
r
20
-yea
r
30
-yea
r
Mexico
United States
17The Mexican Economy: Tackling the problems
Although nonresident holdings of peso government securities have
continued to rise, future portfolio adjustments cannot be ruled out
1/ Cetes, Bondes D, Bonos and UdibonosSource: Banco de México
1,000
1,250
1,500
1,750
2,000
2,250en
e.-1
2
mar
.-1
2
may
.-1
2
jul.-
12
sep
.-1
2
no
v.-1
2
ene.
-13
mar
.-1
3
may
.-1
3
jul.-
13
sep
.-1
3
no
v.-1
3
ene.
-14
mar
.-1
4
may
.-1
4
jul.-
14
sep
.-1
4
no
v.-1
4
ene.
-15
February
Nonresident holdings of peso-denominated government securities1
Billions of pesos
1
2
3
Two short-term challenges
The economic outlook
The problem of long-term growth
Contents
The Mexican Economy: Tackling the problems 18
The Mexican Economy: Tackling the problems
In Mexico, economic activity has begun to gain somesteam
19
Mexico: GDP growthAnnual % change, trend
Source: INEGI
-8
-4
0
4
8
Q12008
Q3 Q12009
Q3 Q12010
Q3 Q12011
Q3 Q12012
Q3 Q12013
Q3 Q12014
Q3
Q4
The Mexican Economy: Tackling the problems
The current upturn has been driven largely by externaldemand
20
Mexico: Aggregate demandAnnual % change, trend
Source: INEGI
-20
-10
0
10
20
30
Q12008
Q3 Q12009
Q3 Q12010
Q3 Q12011
Q3 Q12012
Q3 Q12013
Q3 Q12014
Q3
Domestic spending
External spending
Q4
The Mexican Economy: Tackling the problems
An important source of impetus has come from manufacturing exports
to the U.S., which have recently weakened due to temporary factors
21
Mexico: Manufacturing exports2008=100; s.a.
*/ Estimated on the basis of January and February datas.a. / Seasonally adjustedSource: Banco de México
60
80
100
120
140
160
Q12008
Q3 Q12009
Q3 Q12010
Q3 Q12011
Q3 Q12012
Q3 Q12013
Q3 Q12014
Q3 Q12015
To the U.S.
To the rest of the world Q1*
22The Mexican Economy: Tackling the problems
Going forward, Mexico should benefit from a strongerU.S. economy
U.S. and Mexican GDP forecastsYoY % change
Source: Blue Chip Economic Indicators, March 2015 and Banco de México (2015), Quarterly Report, October-December 2014, Summary, February
2014 2015 2016
U.S. Blue Chip 2.3 3.1 2.9
Mexico Blue Chip 2.1 3.1 3.7
Mexico Banxico 2.1 2.5 – 3.5 2.9 – 3.9
23The Mexican Economy: Tackling the problems
However, the growth scenario faces some risks
To the downside
Consumer and producer confidence potentially remaining stagnant
The risk of a negative impact on economic activity from social unrest
Possibly continuing declines in oil production and prices
To the upside
Stronger-than-foreseen U.S. economic recovery
Greater-than-expected push from structural reforms
24The Mexican Economy: Tackling the problems
In the wake of soft economic activity, Mexico’smonetary policy accommodation increased
Mexico: Monetary policy rate%
Source: Banco de México
2
3
4
5
6
7
8
9
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Sep
-10
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
25The Mexican Economy: Tackling the problems
After an off-track period reflecting mainly noncore components,
inflation has returned to a path toward the 3 percent permanent target
Annual inflation%
First half of March
0
1
2
3
4
5
6
7
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Sep
-10
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
Headline
Core
Source: INEGI
Target
In this context, inflation risks should be carefully monitored to consolidate convergence to the target
26
Risks
Despite low pass-through in recent years, substantial currency depreciation may have a wide impact on inflation
Renewed substantial rises in noncore price components
Eventual aggregate demand pressures
Challenges
Relative monetary stance vis-à-vis the United States
Analysts’ long-term inflation expectations remain above the target
The Mexican Economy: Tackling the problems
Concluding remarks
Mexico has undertaken an ample reform agenda to tackle the problem of low productivity growth
Success depends on the degree the reforms actually bring about market flexibility, investment, and effective competition
In the short term, financial challenges stem from lower oil prices and upcoming U.S. monetary normalization
Further bouts of volatility may occur, and thus authorities must remain on alert
The Mexican economic recovery is picking up steam, although there are risks to the growth scenario
Inflation risks should be carefully monitored to make convergence to the target a permanent phenomenon
The Mexican Economy: Tackling the problems 27
28Mejoran las perspectivas económicas mundiales
top related