Presentación de PowerPoint · Note: Wage indicators of U .S , euro area, K and Japan correspond to average hourly remunerations, compensation per employee, weekly average remunerations

Quarterly Report

August 28, 2019

April – June 2019

1

2

3

4

Outline

5

Inflation

Monetary policy

Current situation of the Mexican economy

External conditions

Forecasts and final remarks

Quarterly Report April - June 2019 1

200

1

200

4

200

7

201

0

201

3

201

6

201

9-6

-4

-2

0

2

4

6

8

10

Available information suggests that world economic activity decelerated during Q2 2019 due to moderation ofgrowth in the main advanced and emerging economies. The escalation of trade tensions between the UnitedStates and other economies has intensified the decline in business confidence, the weakness of investment,and the slowdown of manufacturing.

World GDP Growth 1/

Annual % change, s. a.

-2

-1

0

1

2

3

4

5

6

20

15

20

16

20

17

20

18

20

19

Global Activity IndicatorsAnnual % change of 3-month moving average and

deviation from threshold of 50

s. a. / Seasonally adjusted figures.1/ Figures for Q2 include estimations for some countries. The sample of countries used in the calculationsaccounts for 85.6% of world GDP measured by purchasing power parity.Source: Prepared by Banco de México with data from Haver Analytics, J.P. Morgan and International MonetaryFund (IMF).

Source: CPB Netherlands and Markit.


World trade

PMI: new orders

Industrialproduction

World Economy

World

Advanced

Emerging

JulyQ2 2019 June

Labor markets in advanced economies continued to strengthen and wages continued to increase at amoderate rate.

-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

Unemployment GapPercentage points

-2

-1

0

1

2

3

4

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Nominal WagesAnnual % change, s. a.

Source: Prepared by Banco de México with data from CBO, OECD, Economic Outlook, May 2019 andNational Statistical Agencies.

s. a. / Seasonally adjusted figures.Note: Wage indicators of U.S., euro area, U.K. and Japan correspond to average hourly remunerations,compensation per employee, weekly average remunerations and average monetary remunerations,respectively.Source: BLS, BCE, Bloomberg and ONS.

United States

Euro area

United Kingdom

Japan

Advanced Economies

United States

Euro area

United Kingdom

Japan


JuneJuly

MayJuneJuly

In the main advanced economies, headline and core inflation have remained at low levels and below theircentral banks’ targets. In addition, in a scenario of lower growth, the risk of headline inflation remaining atlow levels and its expectations decreasing persists.

-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Headline Inflation

-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Core Inflation

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

2/ Refers to the Personal Consumption Expenditure Price Index that excludes food and energy (PCE).3/For Japan, it excludes energy and fresh food and the direct effect of the consumption tax increase.Source: Haver Analytics.


Advanced EconomiesAnnual % change

Euro area

United Kingdom

Japan

United States 1/

Euro area

United Kingdom

Japan 3/

United States 2/

JulyJune

JulyJune

-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

Reference Rates and Implied Trajectoriesin OIS Curves 1/

%

Prospective Distribution of the Reference Rate at the End of 2019 Implied in Options 3/

Density

1/ OIS: Fixed-for-floating swap where the fixed interest rate is the one day effective reference rate. 2/ Data for the observed federal funds rate corresponds to the average between the lower and upper bounds of the target range (2.00% - 2.25%). 3/ The implicitdistribution of the reference rate is obtained from the changes in interest rates implicit in options over 3-month futures (LIBOR in the U.S. and United Kingdom, EURIBOR in the euro area and bankers acceptance in Canada). The spread between the reference rate andthe 3-month rate is assumed to remain constant. The implicit distribution in options is calculated using the Breeden-Litzenberger method. Source: Bloomberg.

Advanced Economies

End of2020

End of2019

Federal Reserve 2/

Bank of Japan

European Central Bank

Bank of England

Aug 27, 2019

May 29, 2019

Nov 28, 2018

Implied target rate in OIS curve:

Bank of Canada

Forecasts

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

ModeNov 28, 18: 2.69%May 29, 19: 2.32%Aug 27, 19: 1.93%

ModeNov 28, 18: 2.32%May 29, 19: 1.74%Aug 27, 19: 1.62%

ModeNov 28, 18: 0.96%May 29, 19: 0.77%Aug 27, 19: 0.72%

ModeNov 28, 18: -0.29%May 29, 19: -0.40%Aug 27, 19: -0.61%

May 29, 19Nov 28, 18 Aug 27, 19 Reference rate


United Kingdom0.75%

Euro area-0.40%

Canada 1.75%

United States2.125%

A large number of central banks of both advanced and emerging economies have adopted more accommodativemonetary policies given the absence of significant inflationary pressures, lower growth expectations and the greaterrisks faced by the world economy. This environment has given rise to expectations of an additional easing of monetarypolicy stances, which may occur through the implementation of both conventional and non-conventional measures.

Advanced Economies: Government Bonds Interest Rates

%

These conditions have been reflected in sharp declines in interest rates for all terms in the major advancedeconomies.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

2-year

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

10-year

Source: Bloomberg. Source: Bloomberg.


United Kingdom

United States

Euro area

August

Japan

August

United Kingdom

United States

Euro area

Japan

Global financial markets were subject to high volatility, reflecting, on the one hand, the moreaccommodative monetary conditions and, on the other hand, the large increase in uncertainty regarding theoutlook for the world economy.

Global Risk Appetite IndexIndex

VIX 1/

IndexStock Markets of Emerging and

Advanced Economies Index 02-Jan-2018=100

Source: Credit Suisse. 1/ The VIX index is a weighted indicator that measures implied volatility in theoptions’ market for S&P 500.source: Bloomberg.

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


-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

Dec

-18

May

-19

Euphoria

Panic

Risk appetite

August5

10

15

20

25

30

35

40

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

August

Emerging

Advanced

August

75

80

85

90

95

100

105

110

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

-30

-10

10

30

50

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Accumulated Capital Flows During 2019 1/

Billions of dollars

Nominal Exchange Rate against USDIndex Jan-01-2017 = 100

Sovereign Credit Default Swaps (5-year CDS) Basis points

1/ The sample covers funds used for the buying-selling of stocks andbonds from emerging countries, recorded in advanced countries(includes debt and equity). Flows exclude portfolio performanceand exchange rate fluctuations.Source: Emerging Portfolio Fund Research.

Source: Bloomberg. Source: Bloomberg.

Emerging Markets


50

80

110

140

170

200

80

90

100

110

120

130

140

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

0

100

200

300

400

500

600

0

50

100

150

200

250

300

350

400

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

Chile

Colombia

Turkey

Brazil

Mexico

Depreciation

South Africa August AugustChile

Colombia

Turkey

Brazil

Mexico

South Africa

August 21

Bonds

Equity

Total

Until July, a certain stability had been observed in investment inflows to emerging economies. However, as ofAugust, the escalation of trade tensions, along with the uncertainty generated by the electoral process inArgentina and political instability in Italy, were reflected in falls in the main stock markets, in exchange ratedepreciations and in capital outflows.

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



In Q2 2019, the stagnation that Mexico’s economic activity had been registering in previous quarterscontinued. Such behavior was due to the greater weakness of several domestic components of aggregatedemand, in a context of marked uncertainty stemming from both domestic and external factors.

0.5

60

.89

0.6

30

.84

0.3

4

-0.6

80

.96

0.5

4 0.6

51

.27

0.3

71

.11

0.5

61

.05 1

.20

-0.0

50

.64

0.4

91

.05

1.0

70

.60

0.4

2-0

.46

0.9

61

.27

-0.2

00

.49

0.0

7-0

.26

0.0

2

-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

Gross Domestic ProductQuarterly % change, s. a.

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

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 participation in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.


Q2 2019

Services (62.7%)

Total

Industrial (34.2%)

Agriculture andlivestock products

(3.2%)

June

Such performance was due to the continuing weakness of industrial production and the loss of dynamism oftertiary activities.

70

80

90

100

110

120

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

90

100

110

120

130

140

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

90

100

110

120

130

140

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Industrial ActivityIndex 2013=100, s. a.

IGAE Services Index 2013=100, s. a.

s. a. / Seasonally adjusted figures. Note: Figures in parenthesesrepresent their participation in 2013. Source: Mexico’s NationalAccounts System (SCNM, for its acronym in Spanish), INEGI.

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

Mining (22.3%)

Manufacturing (49.7%)

Construction (23.3%)

Utilities (4.7%)

June

TotalProfessional,

management ofcompanies and

enterprises (8.9%)

June

Transportation andinformation (14.0%)

Public administration (7.1%)

Finance and realestate (23.8%)

June

Trade (28.8%) 1/

Accommodation andfood services (3.6%)

Arts, entertainment, andrecreation (3.8%)

Educational andhealth care (9.9%)


85

95

105

115

125

135

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

25

33

41

49

57

65

1.2

1.6

2.0

2.4

2.8

3.2

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

90

95

100

105

110

115

25

30

35

40

45

50

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Total Private Consumption and Components Index 2013=100, s. a.

Remittances Billion of USD and of constant pesos, s. a.

Consumer Confidence and Total Real Wage Bill

Response balance and index 2013=100, s. a.

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

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

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

US dollars

Mexican pesos 1/

June

As for domestic demand, the weakness exhibited by private consumption since the end of 2018, intensified.

Q2 2019

Real wagebill

Consumerconfidence

JulyMay

Imported goods (10%)

Total

Domestic services (45%)

Domestic goods (45%)


13

Gross fixed investment registered a negative trend.

90

95

100

105

110

115

120

125

130

20

13

20

14

20

15

20

16

20

17

20

18

20

19

80

90

100

110

120

130

20

13

20

14

20

15

20

16

20

17

20

18

20

19

60

70

80

90

100

110

120

130

140

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Investment and its Components Index 2013=100, s. a.

Investment in ConstructionIndex 2013=100, s. a.

Real Value of Construction Output by Contracting Institutional Sector 1/

Index 2013=100, s. a.



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

Construction (61.4%)

Total

Machineryand equipment

(38.6%)

Public (42.8%)

Private residential housing (18.7%)

Private (57.2%)

Private excl. residential housing (38.5%)

Total

June

Residential (42%)

Non-residential (58%)

May

Quarterly Report April - June 2019

May

80

90

100

110

120

130

140

150

160

170

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

80

90

100

110

120

130

140

150

160

170

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

By Destination of Exports Automotive and Non-automotive

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.

Automotive (35.8%)

Non-automotive (64.2%)

July

Total

United States (82.3%)

Rest of theworld

(17.7%)July


Total

As for external demand, despite the weakening of world trade and the escalation of trade tensions, during Q22019, manufacturing exports recovered relative to the deceleration displayed in the previous two quarters.

5.6 4.6 5.5 6.64.2 4.4

4.1

1.11.9

1.4

0.9 0.9

9.7

5.77.4 8.0

5.0 5.3

2014 2015 2016 2017 2018 2019T2

-5

-4

-3

-2

-1

0

1

2

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

In Q2 2019, both domestic and external sources of financial resources continued to grow at a low rate vs. previousyears, further heightening the loss of dynamism that has been observed since S2 2018. In Q2 2019, a surplus wasreached in the current account, mainly reflecting a significant increase in the surplus of the non-oil trade balance.

Sources and Uses of Financial Resources of the EconomyAnnual flows as % of GDP

Trade BalanceUSD million

Current Account% of GDP

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

Note: Bars in darker blue refer to the first quarter of each year.Source: Banco de México and INEGI.

Domestic 1/

External 2/

Internationalreserves 4/

Private sectorFinancing 3/

Public sectorFinancing 6/

Total

TotalOther concepts 5/

Note: Annual flows as a percentage of GDP in each reported quarter refer to the total sources and uses of financialresources in the last four quarters, expressed as a % of average nominal GDP of the same four quarters. 2Q-2019figures correspond to preliminary data. All figures are annual except for the 2Q 2019.1/ Corresponds to domestic financial assets (aggregate F1), composed of monetary and non-monetary domesticsources. 2/ Includes monetary instruments held by non-residents (i.e. the aggregate MNR, which is the differencebetween M4 and M3) and other non-monetary external sources (external debt of the Federal Government andpublic agencies and companies, commercial banks’ external liabilities, external financing to the nonfinancial privatesector, and funds raised by agencies, among others). 3/ Refers to the loan portfolio of financial intermediaries, theNational Housing Agencies (Infonavit and Fovissste), the issuance of domestic debt and external financing of firms.4/ As stated in Banco de México’s Law. 5/ Includes capital accounts, and earnings and other assets and liabilities ofcommercial and development banks, of non-bank financial intermediaries, of the National Housing Agency(Infonavit) and Banco de México –including securities issued by Banco de México for monetary regulation purposes,especially those related to sterilizing the monetary impact of the operational surplus. It includes non-monetaryliabilities from the Institute for the Protection of Bank Savings (IPAB) as well as the effect of the valuation changes ofpublic debt instruments, among other concepts. 6/ It refers to Public Sector Borrowing Requirements (RFSP for itsacronym in Spanish) of each fiscal year, which include Banco de México’s operational surplus turned in to the federalgoverment. Source: Banco de México.

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

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

Sources

Uses

Q2 2019

Non-oil

Oil

Total

Q2 2019

Annual data

Current account

0.4


-1.6

-2.5

-1.9

-2.6

-2.3

-1.7 -1.8

2.5 3.0 3.0 3.9 2.2 2.3

4.7 4.3 4.0 2.6

2.2 1.4

1.3

-1.5 0.0 -0.4

0.40.1

9.75.7 7.4 8.0

5.0 5.3

2014 2015 2016 2017 2018 2019T2

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

The labor market has been exhibiting a lesser degree of tightness.

National and Urban Unemployment Rates %, s. a.

s. a. / Seasonally adjusted data.Source: Prepared by Banco de México with information from the National Survey of Occupations and Employment (ENOE),INEGI.


July

National

Urban

Daily Wage of IMSS-insured Workers 1/

Annual % change

1/ During Q2 2019, an average of 20.4 million workers were registered at IMSS. Real wages were deflated using the CPI.2/ Integrated by the municipalities mentioned in the DOF of December 26, 2018, most of which share boundary with thenorthern border.Source: Prepared by Banco de México with data from IMSS.

-2

0

2

4

6

8

10

12

14

16

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

JulyNorthern border (nominal) 2/

National(nominal)

National (real)

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

-6

-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

In Q2 2019, slack conditions in the economy continued to loosen, in line with weak economic activity.

Gross Domestic Product Gross Domestic Product excluding the Oil Industry 3/

Monthly Slack Index 4/

%

s. a. / Seasonally adjusted data.1/ Output gap estimated with a tail-corrected Hodrick-Prescott filter; see Banco de México (2009), “Inflation Report (April-June 2009)", p.74.2/ Output gap confidence interval calculated with a method of unobserved components.3/ Excludes both oil and gas extraction, support activities for mining, and petroleum and coal products' manufacturing.Source: Prepared by Banco de México with INEGI data.

4/ Index constructed using the Model Confidence Set (MCS) methodology; see Banco deMéxico’s Inflation Report, October – December 2017. The monthly slack index is based on thefirst main component of a set of 11 indicators. Gray lines correspond to individual slackindicators used in the analysis of Principal Components.Source: Prepared by Banco de México with data from INEGI and Banco de México.


May

IGAE

PIB

95% confidence interval 2/

Q2 2019June

IGAE excluding oil Industry

PIB excluding oil Industry

Q2 2019June

Output Gap Estimate 1/

% of potential output, s. a.

95% confidence interval 2/

18

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

Analysts Analysts and Business Representatives

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?2/ Responses from the Monthly Survey of Regional Economic Activity (EMAER, for its acronym in Spanish) associated with the question: In your opinion, which three main 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.

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 1,2/

InflationPublic finances

External conditions

Jan.16 Jul.16 Feb.17 Jan.19 Mar.19

GovernanceDomestic economic conditions Other

Monetary policy

Among the factors that both business representatives and analysts consider might hinder growth, those relatedto governance stand out. Making progress in addressing some of the problems that have affected the economyfor years, such as the rule of law (corruption, insecurity, and impunity) would contribute to an environment thatwould allow for detonating growth.

Jun.19 Jul.19


0

10

20

30

40

50

60

70

80

90

100

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

An

alys

ts

Bu

sin

ess

rep

rese

nta

tive

s

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



Between Q1 and Q2 2019, annual headline inflation went up from an average of 4.10 to 4.21%. Nevertheless, ithas maintained a decreasing trend as compared to the high levels exhibited in 2017, reaching 3.29% in the firstfortnight of August. This has been the reflection of the lower levels of non-core inflation. In contrast, coreinflation has maintained its persistence.

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.


0

1

2

3

4

5

6

7

8

9

10

11

12

13

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

Consumer Price Index 1/

Annual % change

1F August 0

1

2

3

4

5

6

7

8

9

10

11

12

13

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

2001-2019 January, 2016 - 2019

CPI Core Non-core Inflation target

1F August

Within non-core inflation, there were lower increases, particularly in the growth rates of energy product andfruits and vegetables prices, while those of livestock product prices have increased.

-5

0

5

10

15

20

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

-5

0

5

10

15

20

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

Non-core Energy Products

Relative Price Index:Energy Products/Core

1/ In certain cases, the sum of inflation’s components may not add up due to rounding.Source: Calculated by Banco de México with INEGI data.

1F August

Government-authorizedprices

Energy products

Livestock

Non-core

Non-core and Energy Price Subindex 1/

Annual incidences in percentage points

Electricity

LP gas

Natural gas

Gasoline

Energy products1F August


Source: Banco de México and INEGI.

1.0

1.2

1.4

1.6

1.8

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

Relative prices

Linear trend

1F August

Fruits and vegetables

Core inflation has maintained its persistence at around 3.8%. The high rates of change that have beenobserved in food merchandise prices and services prices have contributed to such persistence, while those ofnon-food merchandises have followed a downward trajectory.

0

1

2

3

4

5

6

7

20

13

20

14

20

15

20

16

20

17

20

18

20

19

0

1

2

3

4

5

6

7

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Core Inflation Trend Measures Merchandise and Services Food and Non-food Merchandise

1/ The trimmed mean indicator excludes the contribution of extreme variations inthe prices of some generic items to the inflation of a price index. To eliminate theeffect of these changes, the following is done: i) monthly seasonally adjustedchanges of the generic items of the price index are arranged from the smallest to thelargest value; ii) generic items with the largest and the smallest variation areexcluded, considering in each distribution tail up to 10 percent of the price indexbasket, respectively; and iii) using the remaining generic items, which byconstruction lie closer to the center of the distribution, the Trimmed Mean Indicatoris calculated.Source: Banco de México and INEGI.

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


Core Price SubindexAnnual % change

Core price subindex

Supercore pricesubindex

Trimmed meanindicator 1/

1F August

Core price subindex

Merchandise

Services

1F August 1

2

3

4

5

6

7

8

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Food, beverages and tobacco

Non-food

1F August

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



Monetary policy conduction


May

Rate unchanged at 8.25%

August

One 25bp cut down to 8.00%

June


Some of the downward inflation risks –the greater slack- had intensified while others mightkeep inflation at high levels, making it deviate from the forecast.

In an environment of high uncertainty, an upward balance of risks for inflation relative to itsforecast continued to persist.

The following aspects were taken into consideration:

• That headline inflation has decreased as foreseen by Banco de México.

• The greater than expected widening in the amount of slack in the economy.

• The recent behavior of external and domestic yield curves.

Slack conditions in the economy had eased more than expected and the balance of risks forgrowth continued to be uncertain and tilted downwards.

Although some risks for inflation relative to its forecast had decreased, others had gainedrelevance, thus a high degree of uncertainty as to the risks that could impact inflationprevailed.

May


June


Source: Banco de México and INEGI.

4

5

6

7

8

9

10

11

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

Banco de México’s Governing Board considered that, under the current environment, the level of 8.0% of theovernight interbank rate is consistent with the convergence of headline inflation to its target within the timeframe in which monetary policy operates.

2

3

4

5

6

7

8

9

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Monetary Policy Rate and Consumer Price Index% and annual % change

Overnight Interbank Interest Rateand Government Bonds Interest Rates

%


Target for the overnightinterbank interest rate

August

CPI

1F August

Inflation target

Source: Proveedor Integral de Precios.

August

1 day

10 year

30 year

6.5

7.0

7.5

8.0

8.5

9.0

9.5

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

20

35

20

37

20

39

20

41

20

43

20

45

2.5

3.0

3.5

4.0

4.5

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

Inflation expectations for different terms, drawn from surveys and from financial markets, have remainedrelatively stable, although at levels above 3%. Interest rate spreads between Mexico and the United Statesremain at high levels, and above those observed for other emerging economies.

Yield Curve M Bonos

%

Source: Banco de México’s Survey (monthly periodicity). 1/ Brazil, Chile, Colombia, Turkey, South Africa, South Korea, and Poland.Source: Bloomberg.

Source: Banco de México with data from Proveedor Integral de Precios (PiP) ofOctober 1, 2018- June 10, 2018.

2020

2019

Inflation Expectations for the

end of 2019 and 2020

Median, %

July

HeadlineCore


Volatility-adjusted 3-month Interest Rate

Spread for Selected Emerging Countries 1/

Index

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

20

14

20

15

20

16

20

17

20

18

20

19

Range

Emerging economies’ averageMexico

August

Dec.31, 18

Mar.29, 19

Sep.28, 18

Aug.27, 19

400

450

500

550

600

650

-150

-100

-50

0

50

100

150

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

17

18

19

20

21

22

23

24

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

As for domestic financial markets, although they benefited from expectations of more accommodative monetarypolicies in advanced economies during most of the period covered by this Quarterly Report, bouts of volatilityassociated with external and idiosyncratic factors were observed.

Nominal Exchange Rate 1/

Pesos per dollar

10-year Spread Between US and Mexico and Slope of the Yield Curve in Mexico 2/

Basis points

Sovereign Credit Default Swaps (5-Year CDS) Basis points

1/ Observed exchange rate refers to the daily FIX Exchange Rate. Figures asideanalysts’ expectations correspond to averages of Banco de México survey for Julyand the Citibanamex survey for August 20, 2019.Source: Banco de México and Citibanamex.

2/ The slope is calculated as the difference between the 10-year and the 3-monthrates.Source: Proveedor Integral de Precios (PiP) and Bloomberg.

Source: Banco de México with data from Bloomberg and Fitch.


August

19.99

Observed exchange rate

August50

80

110

140

170

200

100

140

180

220

260

300

340

380

420

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

August

Mexico

BBB

BB+ Pemex

Slope

US-Mexico spread

Analysts’ expectation 2019 Banxico survey 19.69

Analysts’ expectation 2020 Citibanamex survey 20.14

Analysts’ expectation 2020 Banxico survey 20.08

Analysts’ expectation 2019 Citibanamex survey 19.78

1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

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

GDP Growth

(%)

Report Jan-Mar 2019 Apr-Jun 2019

2019 0.8-1.8 0.2-0.7

2020 1.7-2.7 1.5-2.5

Economic Activity Outlook

Fan Chart: GDP GrowthAnnual %, s. a.

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


Increase in number of IMSS-insured jobs

(Thousands)


2019 530-630 450-550

2020 650-750 590-690

2019Q4

2020Q4

2013 2014 2015 2016 2017 2018 2019 2020

Current account deficit

(% of GDP)


2019 1.9 1.2

2020 1.9 1.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2 2.1 2.2

30

1/ Density of expectations of private sector analysts surveyed by Citibanamex estimated with the normal kernel. The Citibanamex survey of 2F May was released May 21, 2019, days before the Jan-Mar 2019Inflation Report was published, and the August survey was released August 20, 2019. Source: Banco de México and Citibanamex survey.


Citibanamex survey

2F August 1/

Citibanamex survey

2F May 1/

GDP Growth in 2019

Interval QR Jan-Mar 2019

Interval QR Apr-Jun 2019

SurveyAverage: 0.5

SurveyAverage: 1.4

Annual GDP Growth Rate Expectations for 2019

Risks to growth within the forecast horizonIn an environment of high uncertainty, the balance of risks continues biased to the downside.


Upward risks:

Downward risks:

Uncertainty about trade disputes worldwide.

Longer delay in the ratification of USMCA in the United States and Canada.

Episodes of volatility in international financial markets.

A greater than expected deceleration of global economy and trade.

Domestic uncertainty that has affected investment and consumption.

Additional deterioration of both the sovereign’s and Pemex’s credit ratings.

That UMSCA is formalized.

A greater than expected dynamism of US industrial production.

A higher than expected dynamism of aggregate demand.

Boost to growth stemming from measures announced by the Ministry of Finance and Public Credit

(SHCP, for its acronym in Spanish).

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 Q2 Q4 Q2

Observed inflationCentral scenario previous reportCentral scenario current reportHeadline inflation target

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 Q2 Q4 Q2

Observed inflation

Central scenario previous report

Central scenario current report

Headline inflation target

Annual Headline Inflation 1/

%

Annual Core Inflation 1/

%

1/ Quarterly average of annual headline and core inflation. The next four and six quarters are indicated as of third quarter of 2019, that is, the third quarter of 2020 and the first of 2021, respectively, periods inwhich the monetary policy transmission channels fully operate. */ Forecast since August 2019. Source: Banco de México and INEGI.

4Q 6QNext

Fan chart

4Q 6QNext

2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021

Headline inflation forecasts for the next four quarters are adjusted to the downside due to lower pressures from bothenergy and agricultural/livestock product prices, while it remains at similar levels for the rest of the forecast horizon.

Core inflation is expected to follow a slightly higher path over the next four quarters given the greater increase inservices prices and a slightly more depreciated peso exchange rate. Nevertheless, since 4Q 2020, it is slightly lower duemainly to the widening in slack conditions.


Q1 Q2 Q3* Q4 Q1 Q2 Q3 Q4 Q1 Q2

Current 4.1 4.2 3.3 3.2 3.4 3.1 3.1 3.0 2.9 3.0

Previous 4.1 4.3 4.0 3.7 3.8 3.2 3.1 3.0 3.0

20212019 2020Q1 Q2 Q3* Q4 Q1 Q2 Q3 Q4 Q1 Q2

Current 3.6 3.8 3.7 3.5 3.4 3.1 3.0 2.9 2.9 3.0

Previous 3.6 3.8 3.6 3.4 3.4 3.0 3.0 3.0 3.0

20212019 2020

2

3

4

5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2019 2020 2021

2

3

4

5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2019 2020 2021

In 1Q 2019, headline inflation was in line with the forecasts published by Banco de México at that time, whereasin 2Q 2019 it lay below expectations, although core inflation has remained stable at relatively high levels.

Core

Note: Observed inflation corresponds to the quarterly average.Source: Banco de México and INEGI.

Note: Observed inflation corresponds to the quarterly average.Source: Banco de México and INEGI.


Inflation ForecastsAnnual % change

Observed inflation

Observed inflation

Report Jan-Mar 2019 (published in May. 2019)

Report Apr-Jun 2019 (published in Aug. 2019)

Report Jan-Mar 2019 (published in May. 2019)

Report Oct-Dec 2018 (published in Feb. 2019)

Headline

Report Apr-Jun 2019 (published in Aug. 2019)

Report Oct-Dec 2018 (published in Feb. 2019)

Risks to inflationIn this environment, a sharp uncertainty persists as to the risks that may impact inflation.


Downwardrisks:

Upward risks:

That core inflation continues to show persistence.

That the peso exchange rate comes under pressure stemming from external or domestic factors.

The imposition of tariffs by the United States, although this risk has mitigated somewhat.

That energy prices revert their trend or that agricultural and livestock product prices increase.

Weak public finances.

The escalation of protectionist measures worldwide.

Given the magnitude of several wage revisions, that cost-related pressures arise, insofar as such revisions are aboveproductivity gains.

That the peso exchange rate appreciates.

That the prices of certain goods included in the non-core subindex register lower rates of change.

That slack conditions widen more than anticipated.

Final remarks


To guide its monetary policy actions, Banco de México’s Governing Board follows closely thedevelopment of inflation and the update of its forecasts vis-à-vis its foreseen trajectory,taking into account the adopted monetary policy stance and the time frame in which itoperates.

The Governing Board will take the required actions based on incoming information so thatthe policy rate is consistent with the orderly convergence of headline inflation to Banco deMéxico’s target within the time frame in which monetary policy operates.

To promote the recovery of economic activity in the short and medium terms, it is necessaryto improve economic efficiency, correcting the structural and institutional setbacks thathave prevented the economy from attaining higher productivity and higher investment levels.

The rule of law must be strengthened in order to promote an environment of certainty andconfidence, which would foster investment and allow for attaining a higher growth rate tothe benefit of all Mexicans.

Annex – Boxes

Effects of Higher Uncertainty on Business Investment in the United States.

Pemex’s Business Plan.

1

3

Recent Evolution of IMSS-insured Employment at both Sectoral and Regional Levels.2


4

5

Updating the Estimate of the Neutral Long-term Interest Rate in Mexico.

Evolution of Term Premia in Mexico.

Documents

Presentación de PowerPoint · Note: Wage indicators of U .S , euro area, K and Japan correspond to average hourly remunerations, compensation per employee, weekly average remunerations