presentación de powerpoint · 60 80 100 120 140 160 180 18 18 19 1920 4 selected industrial metals...

Quarterly Report

February 26, 2020

October – December 2019

1

2

3

4

Outline

5

Inflation

Monetary policy

Current situation of the Mexican economy

External conditions

Forecasts and final remarks

1Quarterly Report October-December 2019

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

10

-Jan

-20

17

-Jan

-20

24

-Jan

-20

31

-Jan

-20

7-F

eb-2

0

14

-Feb

-20

21

-Feb

-20

2

China: Evolution of GDP Growth Forecasts for Q1-2020

Annual % change

Source: Bloomberg and JP Morgan.

GDP GrowthQuarterly annualized % change, s. a.

Global Activity IndicatorsAnnual % change of 3-month moving average

and deviation from threshold of 50

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

-12

-8

-4

0

4

8

12Q4-2019

World

Emerging

Advanced

s. a. / Seasonally adjusted figures.Note: Estimations were used for Q4-2019 calculations. The sample of countries used for thecalculations represents 85.6% of world GDP measured by purchasing power parity .Source: Prepared by Banco de México with data from Haver Analytics, J.P. Morgan andInternational Monetary Fund (IMF).

-2

-1

0

1

2

3

4

5

6

20

15

20

16

20

17

20

18

20

19

20

20

World trade

PMI: new orders

Industrial production

JanuaryDecember

Source: CPB Netherlands and Markit.

World Economy

UBS

Barclays

Capital Economics

Goldman Sachs

JP Morgan

Bank of America

February

Quarterly Report October-December 2019

During 2019, the world economy continued to decelerate. This reflected the impact of: 1) prolonged trade tensions;2) high geopolitical risks, and 3) certain idiosyncratic factors in several economies. Although some of these riskssubsided, others have emerged such as the coronavirus outbreak (Covid-19).

s. a. / Seasonally adjusted figures.1/ G3 includes the United States, Japan and the euro area.Source: Haver Analytics.

-500

0

500

1000

1500

2000

2500

20

15

20

16

20

17

20

18

20

19

G3: Change in Non-farm Payroll 1/

Thousands of people, s. a.

3

-2

-1

0

1

2

3

4

5

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

United States

Euro area

Japan

DecemberJanuary -3

-2

-1

0

1

2

3

4

5

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

United States

Euro area

Japan

JanuaryDecember

s. a. / Seasonally adjusted figures.Source: BLS, ECB, Bloomberg, ONS and Haver Analytics.

Source: Prepared by Banco de México with data from CBO, OECD,Economic Outlook, November 2019 and National Statistical Agencies.

Unemployment Gap Percentage points

Real WagesAnnual % change, s. a.

Advanced Economies

Manufacturing

Services

Other sectors

Non-farm payrolls

Q3-2019


Despite the weakness of economic activity, labor market indicators in advanced economies continue showingrelative strength.

60

80

100

120

140

160

180

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

4

Selected Industrial Metals Prices 1/

Index 01-Jan-2018=100International Crude Oil Prices

US dollars per barrel

1/ The GSCI index is an indicator of 24 commodities prepared by Goldman Sachs. In particular theindustrial metals component follows the prices of aluminum, copper, nickel, zinc and lead.Source: Bloomberg.

Source: Bloomberg.


0

20

40

60

80

100

120

20

14

20

15

20

16

20

17

20

18

20

19

20

20

February

Brent

WTI

Mexican crude oil mix

February

Total

Iron

Nickel

Aluminum

Copper

International prices of commodities have registered high volatility. Although the prices of oil increased duringQ4-2019, such trend has reverted due to the coronavirus outbreak in China.

5

-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Headline Inflation Core Inflation

Headline Inflation Forecasts for 2020

1/ Refers to the Personal Consumption Expenditure Price Index (PCE).Source: BEA, Eurostat and Japan’s Statistics Bureau.

2/ Refers to the Personal Consumption Expenditure Price Index that excludes foodand energy (PCE).3/ Excludes energy and fresh food and the direct effect of the consumption taxincrease.Source: BEA, Eurostat and Japan’s Statistics Bureau.

4/ Refers to the expectation for the Consumer Price Index (CPI).Source: Consensus Forecast. The last survey was conducted in February 2020.


Advanced EconomiesAnnual % change

Euro area

Japan

United States 1/

Euro area

Japan 3/

United States 2/

DecemberJanuary

DecemberJanuary

-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 0.60Median 1.25

February 2020 forecastJanuary 2019 forecast

Observed 2019Observed 2018

United States 4/

Japan

Median 2.00Median 2.25

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

Median 1.20Median 1.50Euro area

Headline inflation in advanced economies remains below the respective central banks’ targets, while coreinflation continues at low levels, reflecting the absence of inflationary pressures. Meanwhile, inflationexpectations remain at low levels.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

22

6

-1

0

1

2

3

4

5

6

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

-1

0

1

2

3

4

5

6

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Reference Rates and Implied Trajectories in OIS Curves 1/

2-year Government Bonds Interest Rates 10-year Government Bonds Interest Rates

1/OIS: : Fixed-for-floating swap where the fixed interest rate is the one dayeffective reference rate. 2/ Data for the observed federal funds ratecorresponds to the average between the lower and upper bounds of thetarget range (1.50% - 1.75%).Source: Prepared by Banco de México with data from Bloomberg.

Source: Bloomberg. Source: Bloomberg.

Advanced Economies %

End2020

US Federal Reserve 2/

Bank of Japan

European Central Bank

Feb 25, 2020

Nov 27, 2019

Dec 31, 2018Implied target rate in OIS curve:

Forecasts

United Sates

Euro area

February

Japan

February

United States

Euro area

Japan


End2021

In this context of low inflation and risks for the world economy, in the short and, especially, in the mediumterms, the central banks of the main advanced economies maintained or expanded their accommodativemonetary policy stances.

7

World Economy: Gross Capital FormationAnnual variation weighted by PPP, s. a.

Advanced Economies: Gross Capital Formation

Annual % change, s. a.

Advanced Economies: Contributions to Growth of Private Non-Residential Investment

in the Last 2 Years 1/

Standard deviations

s. a. / Seasonally adjusted figures.Note: The sample of countries used for the calculation represents 84.3% ofworld GDP measured by purchasing power parity (PPP).Source: Prepared by Banco de México with data from Haver Analytics andInternational Monetary Fund (IMF).

s. a. / Seasonally adjusted figures.Source: Haver Analytics.

1/ Direct and indirect effects are considered for the uncertainty and realinterest rate shocks, see “Quarterly Report October – December 2019”,Banco de México, p. 6.Source: Prepared by Banco de México with information from HaverAnalytics, OCDE, BIS y Bloomberg.


20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

-15

-10

-5

0

5

10

15

20

Advanced

Emerging

World

Q3-2019

UncertaintyReal interest rateChange in GDP growth

-10

-8

-6

-4

-2

0

2

4

6

8

10

20

15

20

16

20

17

20

18

20

19

United States

United Kingdom

Canada

FranceGermanyJapan

Q4-2019 -0.3

-0.2

-0.1

0.0

0.1

0.2

UnitedStates

UnitedKingdom

France Germany Canada Japan

Q3-2019

Although the central banks of advanced economies have maintained accommodative monetary policy stancesand international financial conditions remain loose, the high uncertainty associated to trade tensions andgeopolitical conflicts has had a considerable negative impact on investment and growth.

Box 1: Investment and Uncertainty in Advanced Economies.

98

99

100

101

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

70

75

80

85

90

95

100

105

110

115

120

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

8

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

Global Risk Appetite Index Index

United States: Financial Conditions Index 1/

Units

Stock Markets of Emerging andAdvanced Economies

Index 01-Jan-2018=100

Note: The risk appetite index compares several financial assets, taking into accountthat in periods of high appetite for higher risk assets, such as equities of advancedand emerging economies, these tend to register high returns, while safe assets, suchas government bonds of the United States, the euro area and Japan, tend to presentnegative returns. On the other hand, during periods of low appetite for risk, theopposite occurs. In this context, the index value refers to the coefficient of aregression of the daily yield of 64 assets based on their volatility.Source: Credit Suisse.

1/ The financial conditions index is constructed based on the effect of five variableson economic activity: the reference interest rate, the 10-year government bond, thespread of the bonds with investment grade on the government debt bond withequivalent maturity, the ratio of the stock index with average earnings of 10-yearequities and the trade weighted exchange rate.Source: Banco de México with Bloomberg and Goldman Sachs data.

Note: The MSCI indices of both advanced (MSCI World Index) and emerging (MSCIEmerging Market Index) economies are presented.3/ Includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,Hong Kong, Ireland, Israel, Italy, Japan, Holland, New Zealand, Norway, Portugal,Singapore, Sweden, Switzerland, the United Kingdom and the United States.4/ Includes Mexico, Brazil, Chile, China, Colombia, Peru, the Czech Republic, Egypt,Greece, Hungary, India, Indonesia, South Korea, Malaysia, the Philippines, Poland,Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.Source: Bloomberg.

Euphoria

Panic

Risk appetite

FebruaryAdvanced 2/

Emerging 3/

February February


Loosening

International financial markets exhibited higher risk appetite, supported by the accommodative monetarypolicy stances, the announcement of the preliminary trade agreement between the U.S. and China, and thesigning of the withdrawal agreement between the U.K. and the European Union. However, they have recentlybeen affected by the risk associated with the coronavirus.

9

80

100

120

140

160

180

200

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Depreciation

Chile

Colombia Brazil

Mexico

South Africa

February

Nominal Exchange Rate against USD Index Jan-01-2014=100

Source: Bloomberg.

0

5

10

15

20

25

30

35

40

45

20

14

20

15

20

16

20

17

20

18

20

19

20

20

South Africa

Brazil

Chile

Mexico

Colombia

January

Source: Haver Analytics.

Accumulated Headline Inflation Since 2014%


In the last years, emerging economies have been subject to terms of trade shocks, trade tensions andidiosyncratic risk factors, which have had different effects on their inflation rates.

1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



0.5

60

.89

0.6

30

.84

0.3

5

-0.6

90

.97

0.5

5 0.6

51

.27

0.3

81

.11

0.5

51

.04

1.2

1-0

.02

0.6

00

.44

1.1

01

.13

0.4

80

.33

-0.3

11

.18 1

.33

-0.2

50

.31

0.0

6-0

.13

-0.1

0-0

.08

-0.1

4

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

90

95

100

105

110

115

120

80

90

100

110

120

130

140

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

11

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

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

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

Gross Domestic ProductQuarterly % change, s. a.

Q4-2019


Total

Agricultural and livestock products

(3.2%)

Industrial (34.2%)

Services (62.7%)

December

During Q4 2019, the moderate downward trajectory that economic activity had been exhibiting for severalquarters persisted.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their participation in 2013.1/ Global Indicator of Economic Activity (IGAE, for its acronym in Spanish).2/ Includes both wholesale and retail trade.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

Quarterly Report October-December 2019 12

60

70

80

90

100

110

120

130

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Mining(22.3%)

Manufacturing (49.7%)

Construction (23.3%)

Utilities (4.7%)

Total

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their participation in 2013.Source: Monthly Indicator of Industrial Activity, Mexico’s NationalAccounts System (SCNM, for its acronym in Spanish), INEGI.

December

Industrial ActivityIndex 2013=100, s. a.

90

100

110

120

130

140

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Trade 2/

(28.8%)

Transportation and information (14.0%)

Finance and real estate (23.8%)

Educational and health care (9.9%) December

90

100

110

120

130

140

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Public administration(7.1%)

Professional, management of companies and enterprises

(8.9%)

Accommodation and food services (3.6%)

Arts, entertainment, and recreation (3.8%)

December

IGAE Services 1/

Index 2013=100, a. e.

Industrial activity contracted, while services exhibited low growth and continue showing some weakness.


Private ConsumptionIndex 2013=100, s. a.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym inSpanish), INEGI.

RemittancesBillion USD and

constant pesos, s. a.

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

Consumer Confidenceand Total Real Wage Bill

Response balance and annual % change, s. a.

-8

-4

0

4

8

12

25

30

35

40

45

50

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Q4-2019Real wage bill

Consumer confidence

January

s. a. / Seasonally adjusted figures.Source: Prepared by Banco de México with data from the National Survey ofOccupations and Employment (ENOE, for its acronym in Spanish) and theNational Survey of Consumer Confidence (ENCO, for its acronym in Spanish),INEGI and Banco de México.

85

90

95

100

105

110

115

120

125

130

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

November

Imported goods (10%)

Total

Domestic services (45%)

Domestic goods (45%)

25

35

45

55

65

1.5

2.0

2.5

3.0

3.5

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

US dollars

Mexican peso 1/

December

A lower dynamism of consumption was observed during October–November. However, its main determinantskept showing relative strength.

70

80

90

100

110

120

130

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Total


InvestmentIndex 2013=100, s. a.

Investment in Residential and Non-residential Construction

Index 2013=100, s. a.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym inSpanish), INEGI.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in total in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym inSpanish), INEGI.

Real Value of Construction Output by Contracting Institutional Sector 1/

Index 2013=100, a. e.

50

60

70

80

90

100

110

120

20

13

20

14

20

15

20

16

20

17

20

18

20

19

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2018.1/ Seasonally adjusted by Banco de México, except for the total series.Source: Prepared by Banco de México with data from ENEC, INEGI.

Public (42.8%)

Private residential housing (18.7%)

Private (57.2%)

Private excl. residential housing (38.5%)

Total

December86

94

102

110

118

126

134

20

13

20

14

20

15

20

16

20

17

20

18

20

19

November

Machinery and equipment (38.6%)

Total

Construction (61.4%)

Residential (42%)

Non-residential (58%)

November

Gross fixed investment continued to contract, as a result of the weakness in spending on machinery andequipment and investment in construction.

15

0

10

20

30

40

50

60

70

80

90

100

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Analysts

0

10

20

30

40

50

60

70

80

90

100

An

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pre

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Business representatives and analysts

1/ 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? Responses from the Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) associated with the question: In your opinion, which threemain 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. 2/ Refers to factors such as: public insecurity problems, domestic political uncertainty, corruption, impunityand lack of rule of law. 3/ Refers to factors such as: uncertainty over the domestic economic situation, domestic market weakness, households’ level of indebtedness, firms’ level of indebtedness, absence of structural change in Mexico, availability of domestic financing in Mexico, oil production platform and lack of marketcompetition. Source: Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) and Survey of Private Sector Forecasters.

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

InflationPublic finances

External conditionsGovernance 2/

Domestic economic conditions 3/ OtherMonetary policy

Among the factors that business representatives and analysts consider that could limit growth those relatedto governance stand out. Progress in addressing certain problems that have affected the economy for years,such as the rule of law (corruption, insecurity and impunity), would foster an environment that would allowfor incentivizing growth.

Jan.16 Jul.16 Feb.17 Jan.19 Jul.19 Dec.19Sep.19 Nov. 19Oct.19


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

0.65

0.70

0.75

20

14

20

15

20

16

20

17

20

18

20

19

16

For several years, the Mexican economy has faced an environment of high uncertainty, due to both externaland domestic factors.

Macroeconomic Uncertainty Index for Mexico (IIM) 1/ Maximum Uncertainty Index Associated with 1-month IIM 3/

1/ One-month forecast horizon: 2015-2019; see “Quarterly Report October – December 2019”,Banco de México, p. 22.2/ Mexico City's New International Airport (NAICM, for its Spanish acronym).Source: Banco de México.

3/ Refers to the IIM percentage increase over the maximum level reached in the previous 6 months.Source: Banco de México. See “Quarterly Report October – December 2019”, Banco de México, p. 22.

October

October

Box 2: Impact of Uncertainty on Consumption and Investment in Mexico.

December 2015

Presidential campaign in

the U.S.

July 2018Presidential elections in

Mexico

October 2018NAICM 2/

cancelation

January 2015Mexican oil mix

prices fall by 56% (Jul 14 – Jan 15)


January 2017Announcement

of a possible renegotiation

of NAFTA

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0 6 12 18 24 30 36 42 48 54 60

17

The higher uncertainty has negatively affected consumption and, especially, investment.

Impulse Response Functions to an Uncertainty Shock 1/

1/ See “Quarterly Report October – December 2019”, Banco de México, p. 22.Note: Response to a standard deviation shock. Grey shadows represent 90% statistical confidence intervals.Source: Banco de México.

Months

Investment Consumption

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0 6 12 18 24 30 36 42 48 54 60

Months



85

90

95

100

105

110

115

120

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19


Investment

Counterfactual uncertainty (A): excluding

increase in uncertainty Observed investment

Counterfactual A + CETES (B): without the effect of the interest rateCounterfactual B + IGAE (C): without the IGAE effectCounterfactual C + Public Investment (D): with constant level of public investment

October


1/ See “Quarterly Report October – December 2019”, Banco de México, p. 22.Note: Counterfactual trajectories are constructed based on the historical decomposition of each VAR, by matching the contributions of the uncertainty and CETES to zero accordingly. Source: Banco de México.

85

90

95

100

105

110

115

120

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Consumption

Observed consumption

Counterfactual uncertainty (A): excluding increase in uncertainty

October

Counterfactual Exercises 1/

3-month moving average, January 2016=100

Counterfactual A + CETES (B): without the effect of the interest rateCounterfactual B + IGAE (C): without the IGAE effect

The results suggest that the negative effect of higher uncertainty on consumption and investment hasprevailed above that of other factors, such as financing costs.

80

90

100

110

120

130

140

150

160

170

180

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Automotive and Non-automotive By Destination

Manufacturing ExportsIndex 2013=100, s. a.

s. a./ Seasonally adjusted series.Note: Figures in parentheses represent their 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.

December


80

90

100

110

120

130

140

150

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

December

Automotive (35.8%)

Non-automotive (64.2%)

Total TotalUnited States (82.3%)

Rest of the world

(17.7%)

In Q4 2019, manufacturing exports have declined for a second consecutive quarter. This was mainly the resultof the contraction in automotive exports, although non-automotive exports also exhibited weakness.

-5

-4

-3

-2

-1

0

1

2

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Trade BalanceUSD million

Current Account% of GDP

Source: SAT, SE, Banco de México, INEGI. Mexico’s Merchandise Trade Balance. SNIEG. Informationof national interest.

Source: Banco de México and INEGI.

20

Q4-2019

Non-oil

Oil

Total

Q4-2019

Annual data

Current account


-1.9-1.8

-2.3

-2.6

-1.9

-2.5

-1.6-1.0

-0.5

-0.9

-1.5

-0.9

-0.4

-0.9

-0.7-0.8

-1.7

-2.3

-2.6

-0.2

External accounts have reverted their medium-term trend. Specifically, a surplus in the non-oil trade balance and a deficit in the oil trade balance is observed, along with a sizeable reduction of the current account deficit.

-6

-4

-2

0

2

4

6

8

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

21

Jobs Insured by IMSS: Permanent and Temporary in Urban Areas

Annual change in thousands

0

100

200

300

400

500

600

700

800

900

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Mill

aresJanuary

Source: IMSS.

Average Wage of Salaried Workers according to the National Employment Survey (ENOE) 2/

Annual % change

2/To calculate average nominal wages, the bottom 1 percent and the top 1percent in the wage distribution were excluded. Individuals with zeroreported income or those who did not report it are excluded.Source: Calculated by Banco de México with data from INEGI (ENOE), IMSS,and STPS.


Nominal

Real

Q4-2019

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

NAIRU 1/

s. a. / Seasonally adjusted data.1/ The nationwide NAIRU is the level of the unemployment rate that doesnot accelerate inflation.Source: Prepared by Banco de México with IMSS and INEGI data.

National and Urban Unemployment Rates %, s. a.

December

Urban

National

Although the national unemployment rate reached its lowest level in the last three quarters, in Q4 2019 theurban unemployment rate was slightly higher than in previous quarters. In addition, the underemploymentrate continued to increase and the creation of IMSS-insured jobs continues to decelerate. Meanwhile, wagescontinued to advance in real terms.

Slack Indicators: Main Component by Indicators Frequency 3/

%

-5

-4

-3

-2

-1

0

1

2

3

4

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

-5

-4

-3

-2

-1

0

1

2

3

4

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

3

5

7

9

11

13

15

17

19

21

23

-12

-10

-8

-6

-4

-2

0

2

4

6

8

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Monthly

s. a. / Seasonally adjusted data.1/ Output gap estimated with a tail-corrected Hodrick-Prescott filter; see“Inflation Report April – June 2009”, Banco de México, p. 74.2/ Output gap confidence interval calculated with a method of unobservedcomponents.Source: Prepared by Banco de México with data from INEGI and Banco deMéxico.

3/ Main Indicators constructed using CCM methodology; see Banco de México (2018), “Quarterly Report, October-December 2017”, p.47. Monthly and quarterlyslack indicators are constructed with the main component of sets of series which includes 11 and 12 indicators, respectively. Slack indicators of consumption,economic activity, aggregate demand, labor market and demand conditions in the lending market are based on the first main component of sets of series whichincludes 6, 4, 3 and 6 indicators, respectively.Source: Prepared by Banco de México with data from INEGI and Banco de México.


November

IGAE

GDP

95% confidence interval 2/

Q4-2019December Q3-2019

Output Gap Estimate 1/

% of potential output, s. a.Quarterly

Quarterly indicator

Economic activity indicator Monthly indicator

Consumption

Demand conditions inthe lending market

Labor market

Slack conditions continued to widen, reflecting the moderate decline of economic activity.

1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



0

1

2

3

4

5

6

7

8

20

15

20

16

20

17

20

18

20

19

20

20

Headline

24

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Consumer Price Index

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.


F1 February

Incidences in percentage points 2/

2/ The sum of inflation’s components may not add up due to rounding.Source: Prepared by Banco de México with data from INEGI.

Annual % change 1/

F1 February

3.69

3.033.52

0.76

1.25

1.51

3.52

Headline

Non-core

Variability interval Core

Merchandise

Services

Non-core

During 2019, annual headline inflation decreased significantly, particularly during the 2H-2019, reaching levelsconsistent with the 3% target at the end of Q3 and during Q4 2019. This was mainly due to the decrease in non-core inflation, given that the core index, which better reflects medium-term pressures on prices, showedpersistence at levels above the target, although with slight reductions.

25

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

20

16

20

17

20

18

20

19

20

20

Agricultural and Livestock Products

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

20

16

20

17

20

18

20

19

20

20

Energy Products and Government-authorized Prices

Source: Banco de México and INEGI. Source: Banco de México and INEGI.

F1 February

Total

Fruits and vegetables

Livestock products

F1 February

Total Energy products

Government-authorized prices

Non-core Price SubindexAnnual % change

The annual average non-core inflation level during Q4 2019 was the lowest on record for a quarter, and wasaffected by a lower annual change of agricultural and livestock prices, and of energy prices. However, since thebeginning of 2020, this component increased due to a higher annual change in fruit and vegetable prices anddue to the comparison base in gasoline prices.


26

Merchandise Services

Source: Banco de México and INEGI. Source: Banco de México and INEGI.


Core Price SubindexAnnual % change

Between Q3 and Q4 2019, average annual core inflation decreased slightly, although it rebounded at thebeginning of 2020.

0

1

2

3

4

5

6

7

8

9

10

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

F1 February

Merchandise

Foods, beverages and tobacco

Non-food merchandise

-2

-1

0

1

2

3

4

5

6

7

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

F1 February

Other Services

Housing

Education

Services

1.5

2.5

3.5

4.5

5.5

6.5

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Indicators More Related to Supply Shocks and Observed Core InflationAnnual % change

Source: Prepared by Banco de México with data from INEGI; see “Quarterly Report October – December 2019”, Banco de México, p. 53.


F1 February

Core inflation

SupercoreinflationMore related to

wages

More related to energy products

More related to exchange rate

Box 3: Inflation Indicators More Related to Supply Side Factors.Evidence suggests that certain supply shocks that have affected the economy could be offsetting the effects ofslackness on core inflation.

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



29

Monetary policy conduction

Source: Proveedor Integral de Precios (PiP).

Overnight Interbank Interest Rateand Government Bond Yields

%

2

3

4

5

6

7

8

9

10

Dec

-15

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

Dec

-16

Feb

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

Dec

-17

Feb

-18

Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Dec

-18

Feb

-19

Ap

r-1

9

Jun

-19

Au

g-1

9

Oct

-19

Dec

-19

Feb

-20

1 day

10 years

30 years

February

3 years

The main reasons highlighted in the press releases:

The levels attained by headline inflation and itsoutlook in the horizon in which monetarypolicy operates.

Wider slack conditions in the economy.

The recent performance of external anddomestic yield curves.

Meetings of November and December 2019 and February 2020

25 bp reductions in each meeting to a level of 7%


2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Note: Break-even Inflation and Inflation Risk is calculated as the differencebetween nominal and real long-term interest rates.Source: Banco de México estimates with Valmer and PiP data.

For the End of 2020 Medium- and Long-term

Break-even Inflation and Inflation RiskImplied in Bonds

%

Source: Banco de México’s Survey of Private Sector Forecasters. Source: Banco de México’s Survey of Private Sector Forecasters.

Headline

Core

January2.0

2.5

3.0

3.5

4.0

4.5

5.0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20-day moving average

Break-even inflation implied in 10-year bonds

February2.0

2.5

3.0

3.5

4.0

4.5

5.0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Next 5-8 years

Next 4 years

Inflation target

January

Variability interval (upper limit)

30

Inflation ExpectationsMedian, %

Headline

Core

Short-, medium-, and long-term inflation expectations remained relatively stable for headline inflation, whilethey showed increases for core inflation.


1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



Fan Chart: GDP GrowthAnnual %, s. a.


Economic Activity Forecasts

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

Q2 Q4 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

2021Q4

2020Q4

2019Q4

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

GDP Growth%

Increase in Number ofIMSS-insured Jobs

Thousands

Current Account Deficit% of GDP

Report QR Jul-Sep 2019 QR Oct-Dec 2019

2020 0.8 - 1.8 0.5 - 1.5

2021 1.3 - 2.3 1.1 - 2.1


2020 500 - 600 440 - 540

2021 510 - 610 470 - 570


2020 1.4 0.9

2021 1.7 1.5

2013 2014 2015 2016 2017 2 018 2019 2020 2021

33

Upwardrisks

Downwardrisks


• An escalation of trade tensions.

• A deceleration of the global economy and world trade, including the effects of the coronavirus(Covid -19) outbreak.

• Episodes of volatility in international financial markets.

• Greater and more persistent weakness of aggregate demand components.

• Further deterioration of Pemex’ or the sovereign credit ratings.

• Lower-than-expected public spending.

• That the final ratification of the USMCA leads to higher-than-expected investment.

• Greater-than-anticipated dynamism of industrial production in the United States.

• Greater-than-anticipated dynamism of aggregate demand.

Risks for Growth Scenario in the Forecast HorizonIn an environment of marked uncertainty, the persistent external and domestic risk elements cause the

balance of risks for Mexican economic activity to remain biased to the downside.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

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

Observed inflation

Central scenario previous report

Central scenario current report

Headline inflation target

Fan Chart: Annual Headline Inflation 1/

%


1/ Quarterly average of annual headline inflation. The next four and six quarters are indicated as of first quarter of 2020, that is, the first and third quarter of 2021, respectively; periods in which the monetarypolicy transmission channels fully operate. 2/ Forecast since February 2020. 3/ Forecast since November 2019. Source: Banco de México and INEGI.

Q4 Q6

Next

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Current 2/ 3.3 2.9 3.3 3.3 3.4 3.2 3.0 3.0 3.1 3.0

Previous 3/ 3.3 3.0 3.5 3.1 3.1 3.0 2.8 2.9 2.9

20212019 2020

2015 2016 2017 2018 2019 2020 2021

Forecasts are slightly adjusted upwards starting from Q2 2020, due to: 1) an upward revision in non-core inflation (due tohigher agricultural and livestock prices that are partially offset by lower increases in energy prices); 2) effect of wageincreases, partly offset by an expectation of wider slack conditions.

Annual headline inflation is expected to lie at 3% starting in Q1 2021.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

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

Observed inflation

Central scenario previous report

Central scenario current report

Headline inflation target


1/ Quarterly average of annual core inflation. The next four and six quarters are indicated as of first quarter of 2020, that is, the first and third quarter of 2021, respectively; periods in which the monetary policytransmission channels fully operate. 2/ Forecast since February 2020. 3/ Forecast since November 2019. Source: Banco de México and INEGI.

Fan Chart: Annual Core Inflation 1/

%Q4 Q6

Next

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Current 2/ 3.8 3.6 3.6 3.3 3.2 3.0 2.9 2.9 2.9 2.9

Previous 3/ 3.8 3.6 3.6 3.2 3.1 2.9 2.8 2.9 2.9

2019 2020 2021

2015 2016 2017 2018 2019 2020 2021

Similarly, the trajectory for annual core inflation is slightly adjusted to the upside, although it maintains adeclining trend and is expected to lie at 3% starting in Q4 2020.

36

Downwardrisks

Upwardrisks


• Core inflation’s resistance to decline.

• Wage increases that affect the labor market and prices.

• A possible exchange rate adjustment due to external and domestic factors, including greater risk aversiondue to the coronavirus (Covid -19) outbreak.

• Greater-than-expected increases in agricultural and livestock prices.

• A deterioration in public finances.

• Lower international prices of energy products due to the coronavirus outbreak.

• A widening in slack conditions.

• An additional appreciation of the exchange rate.

Risks to Inflation Outlook within the Forecast HorizonIn this context, uncertainty remains regarding the balance of risks for the described path for inflation.

Final remarks


The global economy continued to decelerate.

World financial conditions remain loose, although volatility has been observed.

Although several risks for the global economic outlook have diminished, others have emerged such as thecoronavirus outbreak.

In Mexico, annual headline inflation decreased considerably in H2 2019, although, as anticipated, it reboundedat the beginning of 2020.

Slack conditions widened more than anticipated.

Annual headline inflation is expected to lie at 3% in Q1 2021, remaining at levels consistent with the inflationtarget in the rest of the forecast horizon.

Economic activity in Mexico is expected to begin its recovery.

It is key to boost confidence in the country, strengthen the economy’s fundamentals, and address the obstaclesthat have prevented the economy from achieving greater medium-term growth.

Generate incentives that foster a higher efficiency in resource allocation.

Strengthen the rule of law.

❶

❷

❸

❹

❺

❻

❼

❽

38

Annex – Boxes


Investment and Uncertainty in Advanced Economies1

Impact of Uncertainty on Consumption and Investment in Mexico2

Inflation Indicators More Related with Supply Factors3

Considerations on the Effect of the 2019 Minimum Wage Increase on Prices4

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