Download 2012-288-IM-Mexico-COMPLETO

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MEXICO
1. General trends
Mexican GDP expanded by 3.9% in real terms in 2011, as compared to 5.5% in 2010. This slackening was
primarily due to lower growth in goods and services exports, which increased by 6.7% in real terms (21.7%
in 2010) in the face of the slowdown in the world economy and the United States in particular. The rate of
import growth also moderated to 6.8%, from 20.5% in 2010. The current account deficit widened slightly to
0.8% of GDP (0.3% in 2010) as the services and income balances turned more sharply negative.
Domestic demand growth slowed to 4.0%, as compared to 5.4% in 2010, owing to slower
expansion of gross domestic investment and consumption. The fiscal deficit fell slightly to close the year
at 2.5% (2.8% in 2010), including investment by Petróleos Mexicanos (PEMEX). Inflation ended 2011 at
3.8%, in line with the Bank of Mexico target of 3% with a margin of one percentage point either side.
There was a small decline in the country’s unemployment rate, which averaged 5.2% for the year (as
compared to 5.4% in 2010) thanks to a rise in the employment rate, but the percentage of the population
working in the informal economy rose.
Economic policy continued to focus on the attainment of macroeconomic balances, and fiscal
policy was still characterized by a moderate public-sector deficit, with spending oriented towards security
and social programmes. The Bank of Mexico kept its reference interest rate, the overnight interbank rate,
unchanged at 4.5% throughout 2011, so that it remained at the level first set in July 2009.
2. Economic policy
(a)
Fiscal policy
Public-sector budgetary revenues rose by 6.8% in real terms in 2011 from their 2010 level. Oil
revenue increased by 9.3% in real terms thanks to a 39.3% rise in the international oil price, which amply
offset a 1% drop in volume. Non-oil tax revenues, meanwhile, rose by 5.7% thanks to higher receipts
from the special production and services tax (IEPS) (10.4%), the combined take of income tax, the flatrate business tax (IETU) and the cash deposit tax (IDE) (8.1%), and value added tax (VAT) (2.9%). This
last grew only moderately because of a large rise in rebates paid out during 2011, while the IEPS
expanded particularly strongly because of higher rates of tax on tobacco. Non-oil tax revenues were the
equivalent of 10% of GDP, the same as in 2010. When oil revenue (tax and non-tax) and the rest of the
public sector are included, total revenues were the equivalent of 22.8% of GDP (22.6% in 2010).
Total public-sector spending rose by 5.3% in real terms. Social development spending was up by
6.8% in real terms, with social assistance, social security and health activities expanding particularly
strongly. Expenditure on public order, security and justice increased by 21.6% and national security
spending was up by 16.6%. Budgeted physical investment spending was 1.1% higher than the 2010
figure. The weakness of this expansion was due to PEMEX recording a lower level of acceptance and
registration of completed work contracts, and to the rescheduling of public works.
The main source of financing for the public-sector deficit was domestic borrowing (78.2%), most
of it through the issuance of what are termed “development bonds” at a fixed nominal rate. At the end of
2011, the net federal public-sector debt (which includes that of the federal government, State agencies and
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enterprises and the development banking sector) was the equivalent of 32.4% of GDP, 1.9 percentage
points higher than the end-2010 figure. Domestic debt represented 21.8% of GDP (21.1% in 2010), while
external debt was 10.6% (9.4% in 2010).
Where external borrowing by the federal government was concerned, the most notable
development was the issuance of US$ 1 billion of new debt yielding 5.96% and maturing in 2110. The
proportion of domestic public debt securities held by foreign investors continued to rise, standing at
26.3% at the end of December (as compared to 19.9% at end-2010). Mexico’s sovereign risk, as measured
by the Emerging Markets Bonds Index (EMBI), was 187 basis points on 30 December 2011, which
compares with a level of 149 points on 31 December 2010.
(b)
Monetary, exchange-rate and macroprudential policy
There was no relaxation of monetary policy in Mexico in 2011, a year when inflation settled
within the central bank’s target range. The main elements influencing the conduct of monetary policy
were expectations of lower economic growth, moderate dynamism in the labour market that did not put
pressure on prices, and the small, temporary effect of exchange-rate fluctuations on inflation.
The currency market went through two distinct periods in 2011. Between January and July, there
was a trend towards nominal appreciation, stoked by inward capital flows in an international context of
growing interest in higher-risk assets. The interbank exchange rate was 11.73 pesos per dollar in late July,
as compared with 12.36 in December 2010. In August, this trend began to reverse in an adverse
international environment created mainly by the worsening of the debt crisis in Europe, which left the
exchange rate at 13.97 pesos per dollar in late December. This implies a depreciation of 13.2% and 6% in
nominal and real terms, respectively, relative to the level at the start of the year.
These exchange-rate fluctuations prompted the Foreign Exchange Commission, comprising the
Bank of Mexico and the Ministry of Finance, to implement new measures with a view to counteracting
the pressure on the exchange rate. On 30 November it temporarily suspended its monthly auctions of
options conferring the right to sell dollars to the Bank of Mexico and arranged for US$ 400 million a day
to be made available by auction at an exchange rate at least 2% higher than the rate set the previous
working day. It was not necessary to put this instrument into effect, however.
The reserves build-up continued into 2011, despite the pressure on the currency market in the
second half of the year, and by late December reserves stood at US$ 142.5 billion (as against US$ 113.6
billion at the end of 2010). Additionally, in January 2011 the flexible credit line with the International
Monetary Fund (IMF) was increased from US$ 48 billion to US$ 73 billion for two years.
The nominal deposit interest rate, taking 28-day Federation Treasury Certificates (CETES) as the
benchmark, was 4.4% in the fourth quarter of 2011 (4.1% in the same period of 2010), or 0.58% in real
terms (-0.29% in 2010). As regards lending rates, the average nominal rate for household loans was
12.5% in December (8.4% in real terms), while the weighted real average effective rate on credit cards
dropped from 25.1% in December 2010 to 24.5% in the same month of 2011.
The monetary base expanded by 10.1% in nominal terms (year-end balance). The balance of the
M1 monetary aggregate grew by 13.6%, driven by deposit growth in cheque accounts and current
accounts held with resident banks. M3 increased by 16% thanks to a substantial rise in domestic financial
assets held by non-residents. Foreign portfolio investment (liabilities) also continued to rise in 2011,
reaching a total of US$ 41.076 billion (US$ 37.557 billion in 2010).
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Total lending to the private sector grew by 16.3% in nominal terms (8.3% in 2010). The strongest
expansion was in consumer credit (24%) which, following three years of meagre growth or contraction,
returned to a high growth rate similar to that seen before 2008. Mortgage lending expanded by 8%, but
without recovering the dynamism seen before the international financial crisis.
The Mexican Stock Exchange Index (IPyC) experienced high volatility between September and
December 2011, reflecting movements in international financial markets. The December average was
36,677 units, as compared to 37,901 in the same month of 2010, a decline of 3.3%.
Where macroprudential policies were concerned, the authorities continued to work towards early
implementation of the Basel III liquidity regulations.
(c)
Other policies
Mexico continued to strengthen its network of international trade agreements in 2011. In
November, it concluded the integration of the trade agreements between itself and the countries of Central
America (Costa Rica, Nicaragua and the so-called Northern Trade Triangle of El Salvador, Guatemala
and Honduras) into a single international trade treaty. One of the main purposes of integrating these
agreements is to promote the use of intraregional inputs and homogenize trade rules such as those of
origin. In April, meanwhile, the comprehensive trade integration agreement between Mexico and Peru
was signed. This includes commitments on goods and services trade along with investment guarantees.
3. The main variables
(a)
Economic activity
Total consumption growth slowed in 2011 to 4% (as compared to 4.8% in 2010) despite the
expansion of credit, owing to moderate growth in total wages and remittance income. Indeed, remittances
are still below their pre-2008 levels. Gross fixed capital formation expanded by 8.7%, which took it back
above the level prior to the recent international financial crisis in real terms.
Farm output (and particularly that of beans, maize, barley, oats, sorghum and rice) contracted in
2011 by 2.9%, owing to the drought which affected a number of states in the country. Manufacturing
expanded by 5.1%, driven by higher output of transport equipment (16.9%), metal products (12.1%) and
machinery and equipment manufacture (11%). The automotive industry expanded particularly strongly,
producing 2.6 million light vehicles, or almost 500,000 more than before the international financial crisis,
as did the value of car part production, which rose to US$ 32.6 billion from US$ 25.5 billion in 2010. In
2011, a number of multinational automotive assembly firms announced plans to set up new plants in
Mexico or increase their production capacity, so that this sector is expected to continue making a
substantial contribution to the dynamism of manufacturing in Mexico.
Construction grew by 4.8% in real terms year on year, thus leaving behind the negative trend of the
two previous years. Tertiary activities grew at a similar rate to the wider economy (4.2%), with commerce
and mass media information services being particularly buoyant (7.6% and 6.6%, respectively). Conversely,
education and health services experienced meagre growth (1.5% and 1.6%, respectively).
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(b)
Prices, wages and employment
The behaviour of inflation, which was within the central bank target range, can mainly be put
down to the lack of demand pressures and weak pass-through of exchange-rate depreciation. Core
inflation was 3.35% in the year, being higher for goods (4.52%) than for services (2.4%). There was
particularly strong price growth in the food, beverages and tobacco sector (7.32%). Non-core annual
inflation was 5.34%, with energy prices and other government-authorized tariffs rising particularly
strongly (6.19%).
The employment rate in the informal sector rose in 2011 to 28.8% of the economically active
population (annual average). In the fourth quarter of 2011 there were 15.3 million workers in formal
employment, as measured by the number of workers registered with the Mexican Social Security Institute
(IMSS), compared to a figure of 14.7 million in the same period of 2010. The real minimum wage rose by
0.3% in 2011, while the manufacturing wage fell by 0.2%.
(c)
The external sector
The widening of the current account deficit reflects larger deficits on both the services account,
chiefly as a consequence of higher payments for transport services, and on the income account, owing to
higher interest payments and repatriation of earnings.
Goods export growth was a robust 17.2%, but this was down on the 2010 figure of 30%. Total
goods exports were US$ 350.25 billion. The strongest growth was in exports of extractive industry
products (67.6%) and oil (35.3%), thanks to rising international prices. Manufacturing exports, which
account for 79.7% of total exports, rose by 13.4%, as compared to 29.5% in 2010. Manufacturing export
growth broke down as follows: 19.5% for the automotive industry, 41.1% for the mining and metallurgy
sector, 20.9% for the iron and steel industry and 20.7% for the food, beverages and tobacco sector.
Goods imports grew 16.4% by value, as compared to 28.6% in 2010. Oil imports rose by 41.4%,
owing to higher international prices and a lack of domestic refining capacity. Capital goods imports
increased by 15.8% after two years of contraction.
The terms of trade improved for the second year running in 2011 (by 2.3%), owing to higher
international oil and mineral prices.
Service exports dropped by 0.4% owing to contraction in the transport and travel sectors.
Revenues from international travellers fell by 0.8% in 2011, while the number of travellers fell by 7.3%.
Conversely, service imports were very dynamic (18.5%). Following the weak performance of the three
previous years, family remittance income expanded by 6.9%.
The financial account presented a surplus because of a substantial reduction in the outflow of
portfolio investment assets, so that a negative balance of US$ 7.9 billion in 2010 turned into a positive
one of US$ 670 million in 2011. Foreign direct investment (FDI) totalled US$ 19.44 billion in 2011, as
compared to US$ 20.2 billion in 2010. New investment accounted for 41.4% of these flows, reinvested
profits for 39.3% and inter-company accounts for 19.3%. The main destination sectors for FDI were
manufacturing (44.1%), financial services (18%) and commerce (9.5%). By country of origin, the largest
sources were the United States (55%), Spain (15%) and the Netherlands (6.7%).
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4. The economy in 2012
ECLAC forecasts GDP growth of 3.8% in 2012 in a context of moderate dynamism in external demand
but with domestic demand underpinning the expansion. The economy grew by 4.6% in the first quarter of
the year. Primary activities expanded especially strongly (6.8%), led by agriculture, while secondary and
tertiary activities grew by 4.5% and 5.0%, respectively.
On 1 July there will be elections for President of the Republic and for the Chamber of Deputies
and Senate. None of the platforms of the four presidential candidates would entail radical changes in the
economic model.
The yearly change in the level of prices by the end of 2012 is expected to be within the Bank of
Mexico’s annual target range. Cumulative inflation in the first four months of the year was 0.65%. During
that period the Governing Council of the Bank of Mexico held its reference rate, the overnight interbank
rate, unchanged at 4.5%. In the first quarter of 2012, commercial bank lending to the private sector
registered a real annual increase of 14.4%, with particularly strong growth in the consumer credit portfolio.
The exchange rate against the dollar appreciated by 5.5% in nominal terms in the first four
months of 2012. In the first three weeks of May, however, there was significant depreciation owing to
renewed risk aversion associated with the political crisis in Greece and the fear that financial problems
would spread to other European countries. In the first 21 days, the Mexican peso depreciated from 13.0 to
13.8 to the dollar.
Budgetary revenues rose by 7.2% in real terms in the first quarter, the result of increases of 18.8%
and 1.3% in oil revenues and non-oil tax revenues, respectively. The modest growth of the latter was due
to the abolition of the vehicle ownership tax. Total public-sector spending expanded by 12.5% in real
terms. The public-sector balance in those first three months was consistent with the figure of 2.2%,
including investment by Petróleos Mexicanos (PEMEX), approved by the Congress (legislature) for the
year as a whole.
The national unemployment rate was 4.9% of the economically active population in the first three
months of 2012, this being below the level in the same period of 2011 (5.2%). The number of workers
registered with the Mexican Social Security Institute (IMSS) was 15.6 million in March, as compared to
14.9 million in the same month of 2011. The average real wage rose by 0.5% between January and April.
The current account deficit will increase slightly (to about 1.4% of GDP) over the year as a
whole, owing to the slackening of external demand growth. Growth in goods exports slowed significantly
in the first three months of 2012 (9.6%, as compared to 22.8% in the same period the previous year).
Similarly, the rate of growth in goods imports fell from 20.6% in the first three months of 2011 to 10.0%
in the first three months of 2012. FDI was US$ 4.372 billion in the first quarter of 2012, 8.7% below the
inflows received in the same period of 2011. Family remittances grew by an annualized 5.3% in the first
three months of 2012, totalling US$ 5.372 billion.