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Outlook on Mexico
So far, a tale of macro stability but still moderate growth: what is the outlook?
Monterrey, 1 February 2016
Jorge Sicilia, BBVA Research
GIC Meeting
Global Economic Scenario / 28 January 2016
1. A structural outlook of the Mexican economy: a journey trough strength and weaknesses
2. Recent developments: growth, markets, vulnerabilities
3. Second generation of economic reforms
Contents
Page 2
Global Economic Scenario / 28 January 2016
The long and winding road
Ruling party loses lower house majority
1993 1997 2000 2013 1994-95
Central bank autonomy
Flexible exchange rate
Ruling party loses presidency
Mexico joins GATT
1986 Structural reforms: Telecom, Labor Financial, Antitrust, Education
Inflation at an all-time low
USD at an all-
time high
Page 3
- 8.0
- 6.0
- 4.0
- 2.0 0.0 2.0 4.0 6.0 8.0
10.0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Debt crisis
Oil crisis Tequila crisis Lehman crisis
NAFTA Structural Reforms
Global Economic Scenario / 28 January 2016
Manufacturing (Annual percentage change, sa) Source: BBVA Research
Strengths: (i) highly integrated to the US economy Exports by destination in 2014 (structure, %) Source: BBVA Research
-1
0
1
2
3
4
5
6
7
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
U.S. Mexico
80.2
9.15.1 4.4 1.1
0
10
20
30
40
50
60
70
80
90
100
USA RestofAmerica EuropeaUnion Asia RestofCountries
Page 4
Global Economic Scenario / 28 January 2016
Mexican exports (% share in total exports) Source: BBVA Research with INEGI data.
Strengths: (ii) with an export structure relying less on petroleum and more on manufacturing
Mexican manufactured exports (% share in total exports) Source: BBVA Research with INEGI data.
0
10
20
30
40
50
60
70
80
90
100
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Petroleum exports Non-petroleum exports
0
10
20
30
40
50
60
70
80
90
100
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Automotive Non-automotive
Page 5
Global Economic Scenario / 28 January 2016
Openness index and trade balance (% share in GDP) Source: BBVA Research with INEGI data.
Strengths: (iii) A very open economy (with free trade agreements with more than 50 countries)
Exports of light vehicles (units in millions, 12mma) Source: BBVA Research with AMIA data.
-6
-4
-2
0
2
4
6
8
10
0
10
20
30
40
50
60
70
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Exports share in GDP Imports share in GDP
Trade balance - right axis
0
0.5
1
1.5
2
2.5
Jan-
95Ja
n-96
Jan-
97Ja
n-98
Jan-
99Ja
n-00
Jan-
01Ja
n-02
Jan-
03Ja
n-04
Jan-
05Ja
n-06
Jan-
07Ja
n-08
Jan-
09Ja
n-10
Jan-
11Ja
n-12
Jan-
13Ja
n-14
Jan-
15
Exports of light vehicles
Page 6
Global Economic Scenario / 28 January 2016
Strengths: (iv) A sound and solvent banking system
7
Bank's Capital Adequacy Ratio, % Source: CNBV
Non-performing loans (NPL) and Provision coverage (PC) ratios Source: CNBV
15,4
14,2
14,1
14,3
16,1
16,0
15,3
16,5
16,9
15,7
15,9
15,5
15,8
15,0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
nov-
15
BIS minimum: 8%
CNBV minimum to avoid "early-warnings”: 10%
Basel III minimum: 10.5%
2,6
140,5
0
50
100
150
200
250
300
0
2
4
6
8
10
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Non-Performing Loans Provision Coverage (PC)
PC
NPL
Global Economic Scenario / 28 January 2016
Potential GDP growth (%) Source: own estimation
Weaknesses: (i) Low GDP per capita (stable relative with the US) with no contribution from TFP
Page 8
- 2
- 1
0
1
2
3
4
5
6
7
- 2
- 1
0
1
2
3
4
5
6
7
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Labor Capital Total Factor Productivity Potential GDP
Global Economic Scenario / 28 January 2016
Weaknesses: (ii) relatively high informality and an improvable legal environment…
0
5
10
15
20
25
30
35
40
45
50
55
I-05 III
I-06 III
I-07 III
I-08 III
I-09 III
I-10 III
I-11 III
I-12 III
I-13 III
I-14 III
I-15 III
IMSS Employment Labor Force
1Q05Diference: Total-IMSS=30.3million
persons
3Q15Diference :Total-IMSS=35.4million
persons
Total and formal private employment (figures in millions of workers) Source: BBVA Research with data of INEGI
Page 9
Informal economy and legal environment (% of GDP and Index) Source: Schneider (2009) and Property Rights Alliance with World Bank data
Info
rmal
eco
nom
y (%
of G
DP)
Index of legal environment (max=10)
Brasil
China
Perú
México
España
EEUU
0
10
20
30
40
50
60
70
2 3 4 5 6 7 8 9
Global Economic Scenario / 28 January 2016
Info
rmal
eco
nom
y (%
of G
DP)
Productivity (relative to the US) Capital (relative to the US)
Informal economy (% of GDP) and … Capital Source: Schneider (2009) and Hall and Jones (1998)
Productivity Source: Schneider (2009) and Hall and Jones (1998)
Brazil
China
Peru
Mexico
Spain
US 0
10
20
30
40
50
60
70
0.2 0.4 0.6 0.8 1 1.2 1.4
Brazil
China
Peru
Mexico
Spain
US 0
10
20
30
40
50
60
70
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Weaknesses: (ii) … keeps productivity and investment down
Page 10
Global Economic Scenario / 28 January 2016
2.8 2.6 2.83.9 3.7 3.8
4.9 4.7 4.8
6.1 6.0 5.9
7.5 7.2 7.2
9.4 9.0 9.1
12.1 11.8 11.4
16.6 16.4 16.1
35.3 37.2 37.4
05101520253035404550556065707580859095100
2010 2012 2014
I II III IV V VI VII VIII IX XIncomedeciles:
1.4 1.4 1.5
Quarterly monetary current income by decile (% of total income) Source: BBVA Research with data from INEGI
Page 11
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
0,40
0,45
0,50
Den
Slov Slvk Nor Cze
Ice
Fin
Bel
Swe
Austr
Neth
Swit
Ger
Hung Pol
Lux
Ire Fra
SKor
Can
Austr
Ita NZa Spa
Est
Por
Gree UK Isr
US Tur
MEX
ICO
Income Inequality, Gini Index. OECD countries Gini coefficient, 0 = complete equality; 1 = complete inequality, Source: OECD, 2012
Weaknesses: (iii) … and prevents wages from growing. At the same time, inequality is high
Global Economic Scenario / 28 January 2016
Traditional and total public sector balance (% of GDP) Source: BBVA Research with data of Ministry of Finance (SHCP)
Weaknesses: (iv) Traditional and total public sector balance has remained high as proportion of GDP
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2009 2010 2011 2012 2013 2014 2015
TraditionalBalance TotalBalance
Total public sector gross debt (% of GDP) Source: BBVA Research with data of Ministry of Finance (SHCP)
34.6 34.9 35.336.4
38.8
41.0
45.7
30
32
34
36
38
40
42
44
46
48
2009 2010 2011 2012 2013 2014 2015
Page 12
Global Economic Scenario / 28 January 2016
High heterogeneity Regional and national economic activity over 2010-15e (2010=100) p/preliminary data; e/in-house estimates Source: BBVA Research with INEGI data
95
100
105
110
115
120
125
2010
2011
2012
2013
p
2014
e
2015
e
Touristic IndustrialHigh Development Medium DevelopmentLow Development National
Regional and national GDP per capita (Compounded annual growth rate %) Source: BBVA Research with INEGI data
Regions are divided by economic vocation and level of development: High Development: DF; Touristic: BCS and Q Roo; Industrial: Ags, BC, Coah, Chih, Jal, Méx, NL, Qro, Son, Tamps; Medium Development: Camp, Col, Dgo, Gto, Hgo, Mich, Mor, Nay, Pue, SLP, Sin, Tab, Tlax, Ver, Yuc, Zac; Low Development: Chis, Gro and Oax.
0
0.5
1
1.5
2
2.5
3
Hig
h D
evel
opm
ent
Indu
stria
l
Nat
iona
l
Tour
istic
Low
Dev
elop
men
t
Med
ium
Dev
elop
men
t
GDP per capita compounded annual growth rate 2003-2014 (%)
Page 13
Global Economic Scenario / 28 January 2016
Contents
Page 14
1. A structural outlook of the Mexican economy: a journey trough strength and weaknesses
2. Recent developments: growth, markets, vulnerabilities
3. Second generation of economic reforms
Global Economic Scenario / 28 January 2016
GDP’s contribution to growth by component (percentage points of total growth Source: BBVA Research with data of INEGI)
In this recovery, GDP growth has been lower than expected and relied mainly on consumption
Page 15
4.7
- 5.8
5.9
7.0 4.7 2.7
5.3
- 0.6
0.1 1.4
4.3 3.0
5.0
3.1 1.4
- 4.7
5.1 4.0 4.0
1.3 2.3
2.5
- 12.0 - 11.0 - 10.0
- 9.0 - 8.0 - 7.0 - 6.0 - 5.0 - 4.0 - 3.0 - 2.0 - 1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Avg Qs15
Consumption Fixed Investment Net Exports GDP
Consumption has been the main driver
of GDP growth
Global Economic Scenario / 28 January 2016
Page 16
Recent developments in financial markets: higher financial stress in EM BBVA Research Financial Stress Index (normalized index) Source: BBVA Research
BBVA Research Financial Stress Index regional map for EM. Source: BBVA Research
Jan-
16
# # # # # # # #EMU # # # # # # # #
# # # # # # # #Brazil # # # # # # # #Chile # # # # # # # #Colombia # # # # # # # #Mexico # # # # # # # #Peru # # # # # # # #
# # # # # # # #Czech Republic # # # # # # # #Hungary # # # # # # # #Poland # # # # # # # #Russia # # # # # # # #Turkey # # # # # # # #
# # # # # # # #China # # # # # # # #India # # # # # # # #Indonesia # # # # # # # #Korea # # # # # # # #Malaysia # # # # # # # #Philippines # # # # # # # #Taiwan # # # # # # # #
Thailand # # # # # # # #
May
-15
Apr
-15
Mar
-15
Feb-
15
Jun-
15
Nov
-15
Jan-
15
Sep
-15
Dec
-14
Dec
-15
Oct
-15
Jul-1
5
Aug
-15
US
Latam
EMEA
Asia
Very high Low
High Very low
Neutral No data
-1,5
0,0
1,5
3,0
4,5
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Developed Emerging
Focus on
Global Economic Scenario / 28 January 2016
Page 17
EM BBVA footprint FX performance vs USD (Base 100 January 2015) Source: Bloomberg and BBVA Research
Recent developments in financial markets: evolving like other “crisis”
BBVA Research Volatility Index: by assets Source: BBVA Research
Fixed income
Credit
FX
Equity
August 2013, 2nd taperging talksAugust 2015 episodeCurrent
60
65
70
75
80
85
90
95
100
105
110
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
ARS CLP COP MXN PEN BRL
Depreciationvs.USD
Global Economic Scenario / 28 January 2016
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
USA UK
Norway
Swed
en
Austria
Germany
France
Nethe
rland
s
Italy
Spain
Belgium
Greece
Portug
al
Ireland
Turkey
Russia
Poland
CzechRe
p
Hun
gary
Bulgaria
Roman
ia
Croatia
Mexico
Brazil
Chile
Colombia
Peru
Arge
ntina
China
Korea
Thailand
Indo
nesia
Malaysia
Philip
pine
s
ThisQuarter 1Quarterag o 1 Year ago
Strong downgrade
pressure
Strong upgrade pressure
Downgrade pressure
Neutral
Upgrade pressure
Agencies’ rating downgrade pressure gap (January 2016) (difference between CDS-implied rating and actual sovereign rating, in notches) Source: BBVA Research
-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.0
Page 18
Recent developments in financial markets: pressure on ratings not focused on Mexico
Global Economic Scenario / 28 January 2016
But risk perception is starting to rise Emerging-markets CDS bp Source: BBVA Research, Bloomberg
Emeging markets CDS change Year-to-date, bp Source: BBVA Research, Bloomberg
050
100150200250300350400450500
Brz(Baa3)
Col(Ba
a2)
Tur(Ba
a3)
Per(A3
)
Mal(A
3)
Mx(A3)
Thai(B
aa1)
Chil(Aa3
)
SKo
r(Aa3
)
215
0
10
20
30
40
50
60
Col(Ba
a2)
Mx(A3)
Per(A3
)
Mal(A
3)
Thai(B
aa1)
Tur(Ba
a3)
Chil(Aa3
)
SKo
r(Aa3
)
Brz(Baa3)
Page 19
Global Economic Scenario / 28 January 2016
Very recent developments show little impact on long term rates also at the start of the year M10 and 10yT yields % Source: BBVA Research, Bloomberg
M10 and 10yT yields Last two months, % Source: BBVA Research, Bloomberg
1.5
1 .7
1 .9
2 .1
2 .3
2 .5
2 .7
2 .9
3 .1
5 .1
5 .3
5 .5
5 .7
5 .9
6 .1
6 .3
6 .5
6 .7
Jan-14
Mar-14
May-14
Jul-1
4
Sep-14
Nov
-14
Jan-15
Mar-15
May-15
Jul-1
5
Sep-15
Nov
-15
Jan-16
M10 ,lhs 10yT, rhs
1.952.002.052.10
2.152.202.252.302.35
6.10
6.15
6.20
6.25
6.30
6.35
6.40
1-Dec
4-Dec
7-Dec
10-Dec
13-Dec
16-Dec
19-Dec
22-Dec
25-Dec
28-Dec
31-Dec
3-Jan
6-Jan
9-Jan
12-Ja
n15
-Jan
18-Ja
n21
-Jan
M10 ,lhs 10yT, rhs
Page 20
Global Economic Scenario / 28 January 2016
Exchange rate and Mexican oil price (ppd and USD per barrel) Source: BBVA Research and Bloomberg
High liquidity currencies. Currencies from oil-exporting countries and MXN * (Index 12/1/2015 = 100) Source: BBVA Research and Bloomberg
Very recent developments show too high volatility in the MXN depreciation: no fear of floating?
* Oil exporting countries: Brazil, Colombia, Russia, Norway, Canada. High liquidity currencies: South Korean Won, Singapore dollar, Taiwan dollar and Hong Kong dollar.
98
100
102
104
106
108
110
112
114
1-Dec 8-Dec 15-Dec 22-Dec 29-Dec 5-Jan 12-Jan 19-Jan
OilExporting HighLiquidity MXN
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-1
5
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
FED-leduncertainty
FED-leduncertainty
ConcernsoverChina'scycle
OPEPdeniesoilproduction cut
Page 21
Global Economic Scenario / 28 January 2016
Inflation in inflation-targeting (IT) countries %YoY Source: BBVA Research, Bloomberg, Central Banks
So far, so good: as opposed to peers, inflation in Mexico is likely to remain comfortably on target
Page 22
0
2
4
6
8
10
12
BRA CHI COL PER MEX CB's target range Current inflation (Jan - 16) Forecast (Dec - 16)
Inflation in IT countries %YoY Source: BBVA Research, Bloomberg, Central Banks
0
2
4
6
8
10
12
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Brasil Chile Colombia Perú México
ForecastInflation target
Global Economic Scenario / 28 January 2016
In Mexico the pass-through is limited and the peso seems to have overreacted compared to fair value
Page 23
Pass through to inflation from a 1% depreciation of the exchange rate to the USD Source: BBVA Research
Exchange rate vs USD: over-undervaluation (%) Source: BBVA Research
-30
-20
-10
0
10
20
30
ARG BRA CHI COL MEX PER
Jan-16 Oct-15
unde
rval
uatio
n ov
erva
luat
ion
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
BRA CHI COL MEX PER URU
may-15 may-14
Global Economic Scenario / 28 January 2016
Page 24
Financial markets: What can we read from recent developments and if so, how does Mexico fare?
Unlikely! Not likely yet!
Probably! Uncertainty about China (growth, rebalancing and FX policy) and persistently low oil prices raise the risk of second round effects (higher vulnerabilities in corporates affecting banks and sovereigns, especially in the oil sector) that could become self-fulfilling.
Is it a downward revision of the
baseline global outlook?
Is it the threat of risk scenarios going
forward in this new world?
Is it a belated
re-pricing of the Fed´s liftoff?
Is it a belated re-pricing of the
Fed´s liftoff?
Global Economic Scenario / 28 January 2016
Page 25
Financial markets: Are they pricing a 2nd round of tail risks on corporates, sovereign & quasi-sovereign?
EM Corporate bond index (spread bp) Source: JP Morgan, BBVA Research
EM Corporate debt index (spread bp) Source: JP Morgan BBVA Research,
0,0
200,0
400,0
600,0
800,0
1.000,0
1.200,0
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
CEMBI Mexico CEMBI Brazil CEMBI Colombia
CEMBI Chile CEMBI Peru
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
May-07 May-09 May-11 May-13 May-15
CEMBI Asia CEMBI Latam CEMBI EM Europe
US: estimated probability of default in the Oil and Gas sector Source: Bloomberg and BBVA Research
(*) S&P 500 subsector default probability (weigthed average of default probability implied in CDS of S&P500 enery companies). Assumning rate of recovery of 70%
0%
20%
40%
60%
80%
100%
Drilling
Expl. &
Prod.
Stor. &
Transp.
Refining &
M.
Equip. &
Serv.
Integrated
Current porbability of default 01/07/2015
+29%
+36% +32%
+10%
+5% +7%
Global Economic Scenario / 28 January 2016
The direct impact of China’s slowdown on Mexico should be quite small
Source: BBVA Research, WEO
Mexico, exports of goods to its partners (Top 10 trade partners, millions, US dollars)
FDI to Mexico by country (% of total, 2014)
US
Canada
China
Spain
Brazil
Colombia
Germany
India
Japan
Netherlands
US
Spain
Canada
Germany
Netherlands
Japan
France
Other
China
Source: BBVA Research, SE
Page 26
Global Economic Scenario / 28 January 2016
Monthly oil trade balance (figures in USD millions) Source: BBVA Research with data of INEGI
Is Mexico too dependent on oil?… a deficit in oil trade balance, a higher current account deficit
-3.2
-2.4
-2.7
-2.4
-2.0
-1.1
-0.8-1.1
-0.8
-1.4
-1.9
-0.9
-0.4
-1.1-1.3
-2.4
-1.9
-3.1
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Current account balance (% of GDP) Source: BBVA Research with data of INEGI and Bank of Mexico
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Page 27
Global Economic Scenario / 28 January 2016
Is Mexico too dependent on oil?… importance in fiscal revenues Fiscal revenues (% GDP) Source: BBVA Research with data from the Ministry of Finance
Page 28
0
2
4
6
8
10
12
14
16
18
20
22
24
2009 2010 2011 2012 2013 2014 2015
Total Revenues Total Oil Revenues
Federal Government Oil Revenues Pemex Oil Revenues
Global Economic Scenario / 28 January 2016
How vulnerable are emerging countries?
Page 29
Macro: (1) GDP (%YoY) (2) Prices (% YoY) (3) Unemployment (% LF) Fiscal: (4) Structural balance (%) (5) Interest rate – GDP % YoY (6) Public debt (% GDP) Liquidity: (7) Debt by non-residents (% total) (8) Financial needs (% GDP) (9) Financial pressure (% GDP) External: (10) External debt (%GDP) (11) RER appreciation (%YoY) (12) CAC balance (% GDP)
Credit: (13) Household (% YoY) (14) Corporate (% YoY) (15) Credit-to-deposit (%) Assets: (16) Private credit to GDP (% YoY) (17) Housing prices (% YoY) (18) Equity (%) Institutional: (19) Political stability (20) Corruption (21) Rule of law
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
12
3
4
5
6
7
8
9
101112
13
14
15
16
17
18
19
20
21
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
12
3
4
5
6
7
8
9
101112
13
14
15
16
17
18
19
20
21
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
12
3
4
5
6
7
8
9
101112
13
14
15
16
17
18
19
20
21
High risk Risk to monitor Safe
Emerging Europe LatAm Emerging Asia
Ass
ets
Macro
External
External debt is the most worrisome vulnerability together with corporate debt
Current account balances and Public debt at high vulnerability levels
Fiscal balances and public debt levels have increased fiscal vulnerability. Corporate and household debt at risk levels
Emerging countries: vulnerability radar 2015 (Relative position for the emerging developed countries. Max risk=1, Min risk=0) Source: BBVA Research
Ass
ets
Macro
External
Ass
ets
Macro
External
Global Economic Scenario / 28 January 2016
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
12
3
4
5
6
7
8
9
101112
13
14
15
16
17
18
19
20
21
How vulnerable is Mexico?
Page 30
Emerging countries: vulnerability radar 2015 (Relative position for the emerging developed countries. Max risk=1, Min risk=0) Source: BBVA Research
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1 .0
12
3
4
5
6
7
8
9
101112
13
14
15
16
17
18
19
20
21
Mexico Brazil
Macro: (1) GDP (%YoY) (2) Prices (% YoY) (3) Unemployment (% LF) Fiscal: (4) Structural balance (%) (5) Interest rate – GDP % YoY (6) Public debt (% GDP) Liquidity: (7) Debt by non-residents (% total) (8) Financial needs (% GDP) (9) Financial pressure (% GDP) External: (10) External debt (%GDP) (11) RER appreciation (%YoY) (12) CAC balance (% GDP)
Credit: (13) Household (% YoY) (14) Corporate (% YoY) (15) Credit-to-deposit (%) Assets: (16) Private credit to GDP (% YoY) (17) Housing prices (% YoY) (18) Equity (%) Institutional: (19) Political stability (20) Corruption (21) Rule of law
High risk Risk to monitor Safe
Ass
ets
Macro
External
Ass
ets
Macro
External
Global Economic Scenario / 28 January 2016
Bank loans in foreign currency by term to maturity (3Q15) Thousand million real and % of total
Foreign currency debt by Mexican firms Corporte vulnerability is limited
Fuente: BBVA Research 31
18.5%
10.2%
15.3%
20.0%
12.2%
23.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
50
100
150
200
250
300
350
400
Menos de 1 año
Hasta 1 año
Hasta 2 años
Hasta 3 años
Hasta 4 años
5 años o más
Total
Nacional Extranjera Porcentaje del total
Pass due loans (IMOR) of corporates for local and foreign currencuy loans (%)
0.6
3.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
ene-
08ju
l-08
ene-
09ju
l-09
ene-
10ju
l-10
ene-
11ju
l-11
ene-
12ju
l-12
ene-
13ju
l-13
ene-
14ju
l-14
ene-
15ju
l-15
IMOR ME IMOR total (MN + ME)
Global Economic Scenario / 28 January 2016
1. A structural outlook of the Mexican economy: a journey trough strength and weaknesses
2. Recent developments: growth, markets, vulnerabilities
3. Second generation of economic reforms
Contents
Page 32
Global Economic Scenario / 28 January 2016
A few comments on the reforms
Page 33
Telecommunications and competition reform
Energy reform It is more than petroleum
New entrants and new benefits
Education Key but so many things to fix
What is missing?
Global Economic Scenario / 28 January 2016
Ease of doing business in Mexico (0-100 scale, 0= worst performance, 100 = the frontier) Source: BBVA Research with WB data.
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5
74.0
2014 2015 2016
Distance to Frontier
01020304050607080
Mex
ico
Chi
le
Col
ombi
a
Chi
na
Reg
iona
l ave
rage
(LA
and
C
arib
bean
)
Bra
zil
Arg
entin
a
Indi
a
Distance to Frontier (2016)
Ease of doing business in various countries (0-100 scale, 0= worst performance, 100 = the frontier) Source: BBVA Research with WB data.
Page 34
The ease of doing business has improved with structural reforms
Global Economic Scenario / 28 January 2016
Where are we?
Page 35
Mexico has built a solid framework for macroeconomic stability in the past 20 years. It has helped to differentiate the country form other EM´s in these times of global turbulence, which does not mean that it is immune to the volatility.
However, the growth track-record has been poor. This is a consequence of stagnant productivity
Recent reforms will help with this, but…
Other reforms are needed, especially on Rule of Law, for the country to exploit its full potential
Outlook on Mexico
So far, a tale of macro stability but still moderate growth: what is the outlook?
Monterrey, 1 February 2016
Jorge Sicilia, BBVA Research
GIC Meeting