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Economic report March 2007 I. (Figure 1) REAL SECTOR Industrial production (Annual percent change, 6-month moving average) • Industrial production rose in January Industrial production increased 1.4% annual in January 2007. In January 2007 manufacturing output rose 0.1%, construction increased 5.7% and utilities grew 6.8%, mining decreased 0.4%, all at annual rates. Seasonally adjusted rates displayed a decline in industrial production of -0.69% in January from December. (INEGI) Source: INEGI (Figure 2) Retail Trade January of each year (Annual percent change) • Wholesale and retail sales increased during January 2007 Wholesales, employment and real average earnings increased 4%, 0.3% and 4.8%, in that order, from January 2006 to January 2007. Retail sales and employment rose 2.3% and 2.7%, while real average earnings decreased 0.4%, in January 2007 with respect to the same period of 2006. (INEGI) Source: INEGI • Unemployment rate slightly rose in February 2007 Unemployment rate reached 4.02% in February 2007, higher than the 3.6% of February 2006. By gender, men’s unemployment rate rose from 3.54% to 3.70%, while women’s unemployment rate increased from 3.7% to 4.57%. Seasonally adjusted rates displayed an unemployment rate of 3.84% in February, a rise of 0.05% with respect to the previous month. (INEGI) (Figure 3) Unemployment rate February of each year (Percentage of Economically Active Population) Source: INEGI (Figure 4) Total workers in the IMSS • Employment rose in January 2007 The number of permanent and eventual urban workers affiliated to the Public Social Security Institution (IMSS) increased by 116,267 at February 28, 2007, to reach 14,083,268. Between February 28, 2006 and February 28, 2007 total employment increased by 868,770, an increase of 6.6%. (STPS) (Annual percent change, 2006-2007) Source: STPS Unidad de Relaciones Económicas y Cooperación Internacional Dirección General de Relaciones Económicas Bilaterales 1 Economic report March 2007 (Figure 6) II. FINANCIAL SECTOR Annual Inflation (Annual percent change, CPI, core inflation and no-core-inflation) • Consumer price index increased in February 2007 Inflation reached 0.28% in February 2007, according to Mexico’s Central Bank. Annual inflation in February was 4.11%, 0.13% higher than in January. Cumulative inflation in the first two months of 2007 was 0.8%. Core inflation and no-core inflation reached 0.41% and 0.02% in February 2007. In annual terms these price indexes rose 3.95% and 4.44%, respectively. (Banxico) • Interest rates of Mexican Treasury Bills (Cetes) decreased The Mexican Treasury Bills yields (Cetes yields) with maturity of 28, 91 and 182 days fell 1, 4 and 4 base points in March 27, 2007 to reach 7.03%, 7.15% and 7.28%, respectively. Government Bonds rates with 10 years of maturity and Udibonos rates with 20 and 30 years of maturity fell 34, 17 and 15 base points, to reach 7.65%, 3.61% and 3.61%, respectively. (Banxico) Source: Banxico (Figure 7) Primary market auction: Cetes 28 days Weekly auctions Source: Banxico (Figure 8) Exchange rate peso/dollar 2006-2007 • The exchange rate displayed a slightly rise The Mexican peso exchange rate reached 11.04 pesos per dollar (ppd) in March 30, reflecting a 2.11 cents increase from the previous Friday level. During 2007 the exchange rate has averaged 11.02 ppd, displaying a depreciation of 24.05 cents. (Infosel) Source: Infosel (Figure 9) • Mexico’s country risk showed a slightly decrease Mexico’s country risk, measure by J.P. Morgan’s EMBI+ Index, decreased 2 base points (bp) in March 30 with respect to the previous week, reaching 97 bp. On the other hand, Argentina’s country risk declined 2 pb, reaching 205 bp, and Brazil’s country risk fell 6 bp to locate at 167 pb. (JP Morgan e Infosel) Country risk 2006-2007 Source: EMBI+, J.P. Morgan e Infosel Unidad de Relaciones Económicas y Cooperación Internacional Dirección General de Relaciones Económicas Bilaterales 2 Economic report March 2007 (Figure 10) International Reserves • International reserves slightly fell Mexico’s international reserves fell by 2 million dollars (md) in March 23, 2007 with respect to their level at March 16, 2007, reaching 69,330 md. During 2007 international reserves have raised 1,650 md. (Banxico) • Mexico’s stock market displays a growing path Mexico’s Stock Market Index (IPyC) rose 1.68% in February 23, reaching 28,747.69 points. The IPyC showed a cumulative profit of 8.69% in Mexican pesos and 6.52% in US dollars with respect to the end of 2006. (BMV) • The retirement funds grew in January Mexico’s balance of workers Savings for the Retirement System (SAR) reached 1,240.4 billions of pesos (mmp) in February, 11.9% more than February 2006. Funds for housing (446.4 mmp) rose 9.6% at real annual rate. Funds for retirement (794 mmp) grew 13.3%. Funds managed by the IMSS rose 13.6% and those managed by the ISSSTE increased 8.6%. (Banxico) At the end of each year, Billions of Dollars Source: Banxico (Figure 11) Mexican Stock Market Index Points Source: BMV (Gráfica 11) Balance of Funds of Retirement (Annual percent change) III. PUBLIC FINANCES •Public finances displayed a surplus in February Mexico’s Public balance reached a surplus of 28.6 billions of pesos (mmp) during February 2007, in line with its target. Cumulative public surplus reached 80.2 mmp at February 2007, higher than the surplus of 55.7 mmp displayed in the same period of 2006. Primary balance reached a cumulative surplus of 115.5 mmp in February, 73.9% more than 2006. Source: Banxico (Gráfica 12) Public Balance January-February of each year Source: SHCP Unidad de Relaciones Económicas y Cooperación Internacional Dirección General de Relaciones Económicas Bilaterales 3 Economic report March 2007 IV. EXTERNAL SECTOR • The trade balance broadened during January 2007 The trade balance deficit reached 1,709 million dollars (md) in January 2007 according to revised information. The trade deficit was driven by a fall in motor vehicle exports, and a narrowing surplus in the petroleum trade balance. Total exports attained 18,989 md, 1.1% lower than in January 2006. Non-oil exports increased 4.3%, and oil exports decreased 25.7%. Imports increased 11.8%, to reach 20,698 md. Consumer goods imports increased 23.3%, capital goods imports raised 11% and intermediate goods imports augmented 9.9%. (INEGI) • Workers’ remittances increased in February 2006 Remittances from Mexican workers in other countries (mainly U.S.A.) reached 1,695 md in February 2007, 2.7% higher than the flows registered in February 2006 and 1.1% lower than the flows of January 2007. The number of transactions in February 2007 was 4.9 millions, 2.5% higher than the level recorded in February 2006. The average amount of each transaction was 346.8 dollars. (Banxico) (Figure 12) Trade Balance January of each Year (million dollars) Source: INEGI (Figure 15) Remittances February of each year Millions of Dollars Source: Banxico (Figure 16) Oli Prices Dollars per barrel, 2006-2007 • Oil prices increase The price of the Mexican oil mix was 55.25 dollars per barrel (dpb) at March 30, increasing 8.18% from the level of March 23; the futures for April for West Texas Intermediate (WTI) and Brent in the derivatives market were 65.87 and 68.10 dpb, respectively, raising 5.76% and 7.79% from March 23 figures. During 2007 the price of Mexican oil mix reached a cumulative increase of 13.54% and an average level of 47.12 dpb. (Pemex and Infosel) Source: Pemex and Infosel Unidad de Relaciones Económicas y Cooperación Internacional Dirección General de Relaciones Económicas Bilaterales 4 Economic report March 2007 V. OUTLOOK • An inflation of 3.62% is expected in 2007 Banamex-Citigroup.- According to the Outlook Survey of Financial Markets Analysts, inflation at the end of 2007 could reach 3.68% (this level is lower than their previous forecasts of 3.7%). The Banamex-Citigrup projection is 3.62%. Core inflation in 2007 will be 3.56%. • The Mexican economy will grow near 3.6% in 2007 BBVA-Bancomer.- Although it will depend in the performance in figures of consumption and investments in the next months, the behavior of aggregated demand and supply is in line with a 3% growth in the first quarter of 2007 and 3.6% for the whole year. • Interest rates are expected to fall in the fourth quarter Banamex-Citigroup.- According to a survey the interest rate (now at 7%) will end 2007 in 6.75%. A fall in 25 base points is expected for 80% of the analysts surveyed. This expectation is driven by a projection of 3.6% for core inflation in October and 3.5% in November. Unidad de Relaciones Económicas y Cooperación Internacional Dirección General de Relaciones Económicas Bilaterales 5