Quarterly Report - banxico.org.mxA... · Quarterly Report July –September 2015 After having converged to the permanent 3 percent target, headline inflation decreased further since

Quarterly Report

November 04, 2015

July-September 2015

11

Outline

Monetary Policy1

Economic Activity in Mexico3

Inflation Determinants4

Forecasts and Balance of Risks5

External Conditions2

22Quarterly Report July – September 2015

3

Monetary Policy Conduction


After having converged to the permanent 3 percent target, headlineinflation decreased further since May 2015 and registered newhistorical minimum levels. To this contributed:

1. The monetary policy stance.

2. A negative output gap.

3. Effects of price reductions of widely used inputs, as well as goods andservices whose prices decreased as a result of the implementation ofstructural reforms.


The favorable evolution of inflation has been achieved in a difficulteconomic environment.

Domestic Environment:

The relative price adjustment,associated with national currency’sdepreciation, has mainly beenreflected in durable goods’ prices.

Moderate growth of economic activity.

External Environment:

Global growth remains at very lowlevels.

Uncertainty with respect to thenormalization process of the U.S.monetary policy continues.

Well-anchored inflation expectations.

→ All this has been reflected in financialassets’ price drops at the global level.

Greater concern regarding the depthof China’s and other emergingeconomies’ deceleration.

5

Taking these elements into account, the Board of Governors decided tomaintain the Overnight Interbank Interest Rate target at 3 percent, by virtue ofthe fact that it considered the monetary policy stance to be conducive to theconsolidation of the convergence of inflation to the permanent 3 percent target.

2

3

4

5

6

7

8

9

10

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

Target for the Overnight Interbank Interest Rate 1/

%

1/ The Overnight Interbank Interest Rate is shown until January 20, 2008.Source: Banco de México.

5

November

Quarterly Report July – September 2015

Outline

Monetary Policy1






0

1

2

3

4

5

6

7

8

9

20

10

20

11

20

12

20

13

20

14

20

15

20

16


7

GDP GrowthAnnual % change

Headline Annual Inflation Annual % change

World economic activity continued weakening.

Source: IMF, WEO April and October 2015. Source: IMF, WEO April and October 2015.

World

Advanced

Emerging

Forecast

0

1

2

3

4

5

6

7

8

9

20

10

20

11

20

12

20

13

20

14

20

15

20

16

World

Advanced

Emerging

ForecastApril 2015October 2015

April 2015October 2015

World Economy

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

20

13

20

14

20

15

-4

-2

0

2

4

6

8

10

12

20

10

20

11

20

12

20

13

20

14

20

15

3Q-2015


8

The U.S. economy grew moderately in the third quarter. To this contributedthe solid domestic demand, which offset the strong disaccumulation ofinventories.

Real GDP and ComponentsQuarterly % change at annual rate

and percentage points contributions, s. a.

Industrial and Manufacturing Production

Quarterly % change at annual rates, s. a.

Change in Non-farm Payrolls and Unemployment Rate

Thousands of jobs and % of EAP, s. a.

s. a. / Seasonally adjusted data.Source: Bureau of Economic Analysis (BEA).

s. a. / Seasonally adjusted data.Source: Federal Reserve.

EAP/ Economically Active Population.s. a. / Seasonally adjusted data.Source: Bureau of Labor Statistics (BLS).

Industrial Production

Manufacturing Production

3Q-20152

3

4

5

6

7

8

9

10

11

-800

-600

-400

-200

0

200

400

600

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Change in non-farm payrolls

Unemployment rate

September

Public Expenditure

Net Exports

Inventories

Fixed Investment

Private Consumption

Total

United States


9

In the Euro zone, economic recovery continued, although at a lower rate thanexpected, with large heterogeneity among the member countries.

Economic Sentiment Indicator and Consumer Confidence

Standardized data from period 2000-2007

Industrial Production 2/

Index Dec-2007=100, s. a.

1/ Composite indicator, which summarizes five sectorial confidence indicators:industry, services, retail, construction and consumptionSource: Haver Analytics.

s. a. / Seasonally adjusted data.2/ Excluding construction industry.Source: Eurostat.

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

20

10

20

11

20

12

20

13

20

14

20

15

September

Consumer Confidence

Economic Sentiment Indicator1/

60

65

70

75

80

85

90

95

100

105

110

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

August

Germany

ItalyFrance

Spain

Euro Zone

Euro Zone


10

Economic activity in emerging economies keeps slowing down.

Industrial ProductionAnnual % change of 3-month

moving average

ExportsAnnual % change of 3-month

moving average

Source: Haver Analytics and INEGI. Source: Haver Analytics and INEGI.

-15

-10

-5

0

5

10

15

20

25

30

35

20

10

20

11

20

12

20

13

20

14

20

15

September

-40

-20

0

20

40

60

80

20

10

20

11

20

12

20

13

20

14

20

15

September

Brazil

Chile

China

Colombia

India

MexicoPeru

Russia

Brazil

Chile

China

Colombia

India Mexico

Peru

Russia

Emerging Economies

60

65

70

75

80

85

90

95

100

105

110

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

525

40

55

70

85

100

115

130

145

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

Mexican Oil Mix

WTI

Futures 1/


11

Crude Oil PricesUSD per barrel

Commodities Prices 2/

Index Jan-2005=100

1/ Data up to November 03, 2015.Source: Bloomberg.

2/ It refers to the Thomson Reuters’ CRB index composed by 19 raw materials divided in 4groups: energy (39%), agriculture (41%), precious metals (7%) and industrial metals (13%).Source: Bloomberg.

Commodity prices decreased during most of the third quarter of 2015,although they showed certain recovery in October.

Agriculture

Energy

IndustrialMetals

Total

November


12

Inflation in the main advanced economies decreased during the periodcovered by this Report. Emerging economies presented a mixedinflationary performance.

Advanced EconomiesAnnual % change

Emerging EconomiesAnnual % change

Source: Haver Analytics. Source: Haver Analytics and INEGI.

-6

-4

-2

0

2

4

6

8

10

12

14

16

18

20

20

10

20

11

20

12

20

13

20

14

20

15

September-3

-2

-1

0

1

2

3

4

5

6

7

20

10

20

11

20

12

20

13

20

14

20

15

September

Brazil

ChileChina

Colombia

India

Mexico

Peru

Russia

United States

Japan

United Kingdom

Euro Zone

Headline Inflation

78

81

84

87

90

93

96

99

102

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

Oct

-15


13

In international financial markets, uncertainty regarding thenormalization process of the U.S. monetary policy continues.

Expected Monetary Policy Rates 1/

%U.S. Dollar Index (DXY) 2/

Index 1-Jan-2013=100

1/ The expected rates are the trajectories implicit in OIS Curves (Overnight IndexSwap).Source: Bloomberg with estimates from Banco de México.

2/ DXY index is estimated by the Intercontinental Exchange (ICE) based on theweighted geometric mean of the dollar's value compared with a basket of 6 othermajor currencies which are: EUR: 57.6%, JPY: 13.6%, GBP: 11.9%, CAD: 9.1%, SEK:4.2%, and CHF: 3.6%. Source: Bloomberg.

Depreciation

November

-0.35

-0.05

0.25

0.55

0.85

1.15

1.45

1.75

No

v-1

3

Jun

-14

Dec

-14

Jul-

15

Jan

-16

Au

g-1

6

Mar

-17

Sep

-17

European Central Bank

Bank of England

Federal Reserve

End of 2015 End of 2016 End of 2017

Implied target rate in OIS curve, Sep. 15, 2015

Implied target rate in OIS curve, Nov. 03, 2015


14

-80

-60

-40

-20

0

20

40

60

80

100

120

140

1 4 7

10

13

16

19

22

25

28

31

34

37

40

43

46

49

52

Weeks

2008

2009

2010

2012

2013

2014

20152011

Accumulated Capital Flows(Debt and Equity) 1/

Billions of dollars

Nominal Exchange Rate against USDIndex 01-Jan-2013 = 100

1/ The sample covers funds used for the buying-selling of stocks and bonds fromemerging countries, recorded in advanced countries. Flows exclude portfolioperformance and changes in the exchange rate.Source: Emerging Portfolio Fund Research. Source: Bloomberg.

14

Oct.-28

The aforementioned was reflected in a drop in capital flows to emergingeconomies, with its consequent effect on their exchange rates.

90

100

110

120

130

140

150

160

170

180

190

200

210

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Korea

Chile

Colombia

South Africa

Depreciation

Brazil

Mexico

November

Emerging Economies

Outline

Monetary Policy1






0.2

0.5

-0.1

-1.9

-3.9

-1.0

2.1

1.7

1.3 1.3

0.9

0.8 1

.10

.81

.50

.7 0.9

1.3

0.3

0.9

0.7

-1.2

1.2

0.3 0

.5 0.8

0.6 0.7

0.4 0.5 0.6

-5

-4

-3

-2

-1

0

1

2

3

4

I 200

8

III 2

008

I 200

9

III 2

009

I 201

0

III 2

010

I 201

1

III 2

011

I 201

2

III 2

012

I 201

3

III 2

013

I 201

4

III 2

014

I 201

5

III 2

015

80

90

100

110

120

130

140

150

160

90

94

98

102

106

110

114

118

122

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15


In the third quarter of the present year, economic activity in Mexico maintainedthe moderate growth pace registered since the beginning of 2015.

Gross Domestic ProductQuarterly % change, s.a.

Global Indicator of Economic Activity

Index 2008=100, s.a.

s.a. / Seasonally adjusted data.1/ The GDP data for the third quarter of 2015 corresponds to preliminaryestimates published by the INEGI.Source: Mexico’s System of National Accounts, INEGI.

s. a. / Seasonally adjusted data.Source: Mexico’s System of National Accounts, INEGI.

16

3Q 2015 1/

Services

Total

Industrial Production

Agricultural August

16


As regards to economic activity from the production side, the industrialsector showed a slow growth pace.

85

90

95

100

105

110

115

120

125

130

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Industrial ActivityIndex 2008=100, s.a.

80

85

90

95

100

105

110

40

60

80

100

120

140

160

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Mining SectorIndex 2008=100, s.a.

s. a. / Seasonally adjusted data.Source: Monthly Indicator of Industrial Activity, Mexico’s System of NationalAccounts, INEGI.

s. a. / Seasonally adjusted data.Source: Monthly Indicator of Industrial Activity, Mexico’s System of NationalAccounts, INEGI.

17

Mining of metal and non-metal

minerals

Services related to mining

Crude oil mining

August

MiningConstruction

Electricity

Manufacturing

August

17

30

50

70

90

110

130

150

170

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Non-Oil Exports

18

Total, Oil and Non-Oil ExportsIndex 2008=100, s.a.

Manufacturing ExportsIndex 2008=100, s.a.

s. a. / Seasonally adjusted data.Source: SAT, Secretaría de Economía, Banco de México, INEGI. México´sGoods Trade Balance. SNIEG. National Interest Information.

s. a. / Seasonally adjusted data.Source: SAT, Secretaría de Economía, Banco de México, INEGI. México´sGoods Trade Balance. SNIEG. National Interest Information.

Exports kept exhibiting a relative stagnation.


50

70

90

110

130

150

170

190

210

230

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Total

Automotive

Non-automotive

SeptemberSeptember

Total

Oil Exports


19

Gross fixed investment continued showing a moderate dynamism at thebeginning of the quarter subject of this Report.

Investment and its ComponentsIndex 2008=100, s.a.

Imports of Capital GoodsIndex 2008=100, s.a.

Residential and Non-Residential Construction Investment

Index 2008=100, s.a.


s. a. / Seasonally adjusted data.Source: SAT, Secretaría de Economía, Banco deMéxico, INEGI. México´s Goods Trade Balance.SNIEG. National Interest Information.


60

70

80

90

100

110

120

130

140

150

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Total

National machinery and

equipment

Construction

Imported machinery and

equipmentAugust

70

75

80

85

90

95

100

105

110

115

120

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

80

85

90

95

100

105

110

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Non-residential

Residential

AugustSeptember

50

60

70

80

90

100

110

120

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Revenues of Commercial RetailBusiness and Total ANTAD Sales

Index 2008=100, s.a.

Consumer ConfidenceIndex Jan-2003=100, s.a.

Workers’ RemittancesBillion, constant

USD and MXN 1/ , s. a.

s.a./ Seasonally adjusted data.Source: INEGI and elaborated by Banco de Méxicowith data from ANTAD.

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

s.a./ Seasonally adjusted data.1/ At prices of the second fortnight of December, 2010.Source: Banco de México.


Some of the private consumption indicators registered higher growth ratesas compared to the previous quarter.

90

95

100

105

110

115

120

125

130

135

140

90

95

100

105

110

115

120

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

August

ANTAD

September

Revenues of Commercial Retail Business

12.0

17.0

22.0

27.0

32.0

37.0

42.0

1.6

1.8

2.0

2.2

2.4

2.6

2.8

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

September

USD

Pesos

September

Possibility of buying durable goods

Consumer confidence index

21

In face of the moderate economic growth, in the third quarter of 2015 slackconditions persisted in the labor market.

IMSS-Insured Jobs, Employed Population and Total IGAE

Index 2012=100, s. a.

National Unemployment Rate % of EAP, s. a.

IMSS Reference Wage 2/

Annual % change

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

September85

89

93

97

101

105

109

113

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

IMSS-affiliated Jobs1/

Total IGAE

SeptemberAugust

s. a. / Seasonally adjusted data.1/ Permanent and temporary workers in urban areas.Seasonally adjusted by Banco de México.Source: Calculated by Banco de México with data fromIMSS and INEGI (SCNM and ENOE).

EAP/ Economically active population.s. a. / Seasonally adjusted data.Source: National Employment Survey (EncuestaNacional de Ocupación y Empleo), INEGI.


EmployedPopulation

2Q 2015

2/ During the third quarter of 2015, on average 17.7million of contributors were registered to IMSS.Source: Calculated by Banco de México with data fromIMSS.

2

3

4

5

6

7

8

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

3Q 2015

Outline

Monetary Policy1






Consumer Price IndexAnnual % change

Source: Banco de México and INEGI.

2323

1

2

3

4

5

6

7

8

9

10

11

12

13

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

1F-October

General

CoreVariability Interval

Non-Core


In the third quarter of 2015, annual headline inflation exhibited furtherdecreases in addition to those observed in the previous quarter, locatingbelow 3 percent and reaching new historical minimum levels.

0

1

2

3

4

5

6

7

8

9

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Merchandise

Durables

Non-durables

24

MerchandiseAnnual % change

-2

-1

0

1

2

3

4

5

6

7

8

9

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

ServicesAnnual % change

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

Core Price Index

24

Services

Education (tuition)

Housing

Other services


The effect of the exchange rate depreciation on prices was limited, mainlyaffecting durable merchandise, without generating second round effectsso far.

1F-October1F-October

-3

0

3

6

9

12

15

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Energy and Government Approved Fares

Energy

Government Approved Fares

-15

-9

-3

3

9

15

21

27

33

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Agricultural

Livestock

Fruits and vegetables

AgriculturalAnnual % change

Energy and Government Approved FaresAnnual % change

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

Non-Core Index

25

1F-October 1F-October


The average annual growth rate of the non-core price index continuedslowing down.

-10

-8

-6

-4

-2

0

2

4

6

8

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

3Q 2015

Output Gap 1/

% of potential output, s. a.

s.a. / Calculated with seasonally adjusted data.1/ Estimated using the Hodrick-Prescott (HP) filter with tail correction method; see Banco de México (2009), “Inflation Report April–June2009”,p.69.The shaded area is the 95% confidence interval of the output gap, calculated with an unobserved components method.2/ The GDP data for the third quarter of 2015 corresponds to preliminary estimates published by the INEGI .Source: Calculated by Banco de México with data from INEGI.

26

GDP /2

IGAE


In light of the abovesaid, slack conditions are expected to persistin the economy in the coming years, although gradually declining.

August

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Break-even Inflation Decomposition 1/

%

Annual Headline Inflation ExpectationsMedian, %

1/The inflation risk Premium is calculated with data from Valmer and Bloomberg,based on the methodology described in Box 1 “Decomposition of the Break-evenInflation ” of the Quarterly Report October-December 2013.

Source: Survey of private sector economic analysts’ expectations, Banco deMéxico.

27

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

27

Next 4 years

Next 5-8 years

Variability Interval

End of 2016

End of 2015

October

Inflationary risk premium

Long-term inflation expectation

Break-even inflation implicit in 10-year bonds

3.07

-0.14

3.22


Inflation expectations implicit in long-term market instruments remainedstable, while survey-based ones for the end of 2015 kept decreasing.

September


28

11.5

12.5

13.5

14.5

15.5

16.5

17.5

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Exchange Rate 1/

Pesos per USD

4

6

8

10

12

14

16

18

20

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Implied Volatility in ForeignExchange Rate Options 2/

%

1/ The latest data for the observed exchange rate is November 03, 2015.Source: Banco de México.

2/ Refers to implied volatility in one-month options.Source: Bloomberg.

Exchange rate 16.42

The Mexican peso, just like other emerging economies’ currencies,registered an additional depreciation in the third quarter of 2015. Part ofthis depreciation reverted in October.

November November

29

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

International ReservesUSD billion

Foreign Exchange Commission Preemptive Steps to Provide Liquidity

to the FX Market:

Source: Banco de México and International Monetary Fund.

23-October

International Reserves

IMF’s Flexible Credit Line

The reduction in international reserves during the third quarter was due to thecontinuation of the USD auction mechanisms, determined by the Foreign ExchangeCommission.


December 2014: Daily auctions of dollars of

up to USD 200 million at a minimum price.

March 2015: Daily auctions of USD 52

millions without a minimum price.

May 2015: The extension until September 29,

2015 of the auction period of USD 52 millions

without a minimum price.

July 2015: The increment in the amount of

auctions without a minimum price from USD

52 to 200 million, and the decrease of the

threshold from 1.5% to 1.0%, to activate the

auctions with a minimum price, both

mechanisms until September 30, 2015.

September 2015: The extension until

November 30, 2015 of both mechanisms.

5.0

5.3

5.6

5.9

6.2

6.5

6.8

25

35

45

55

65

75

85

jun

. 13

sep

. 13

dic

. 13

mar

. 14

jun

. 14

sep

. 14

dic

. 14

mar

. 15

jun

. 15

sep

. 15

30

Interest rates in Mexico showed declines for different terms and trading conditionsin the debt market have improved.

Trading Conditions Index in Debt MarketIndex, %

Note: The index is calculated based on the average volatility bias, kurtosis, buyingand selling differential, all these intraday operation of Dec- 24 Bond, and dailytrading volume. From them, the percentiles are calculated in the period 2013-2015 and the average of the six percentiles for each day is taken.Source: Brokers Interbancarios with calculations of Banco de México.

Dec.-24 bond yield

Conditions index

November

Worsening of conditions


Government Securities’ Interest Rates 1/

%

1/ Since January 21, 2008, the one-day (overnight) interest rate corresponds to thetarget for the Overnight Interbank Interest Rate.Source: Proveedor Integral de Precios (PiP).

2

3

4

5

6

7

8

9

10

11

12

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

1 day

10 years

30 years

1 year

3 months

2 years

November

31

Total government securities’ holdings by foreign investors remained relativelystable and spreads between Mexican and U.S. interest rates behaveddifferentiated.

Government Securities’ Holdings by Foreign Investors

MXN billion

Mexico and United States Interest Rate Spreads

Percentage points

1/ Includes: Bondes, Bondes D, Bonos, Cetes and Udibonos.Source: Banco de México.

Source: PiP, Banco de México and U.S. Treasury Department.


2.5

3.0

3.5

4.0

4.5

Jan

-14

Mar

-14

Jun

-14

Au

g-1

4

No

v-1

4

Feb

-15

Ap

r-1

5

Jul-

15

Oct

-15

November

1 day

10 years30 years

1 year

3 months

2 years

0

400

800

1,200

1,600

2,000

2,400

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

October

Total 1/

Bonds

CETES

Outline

Monetary Policy1






-9-8-7-6-5-4-3-2-10123456789

-9-8-7-6-5-4-3-2-10123456789

Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4

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

Fan Charts

GDP Growth(%)

Report Previous Current

2015 1.7 - 2.5 1.9 - 2.4

2016 2.5 - 3.5 2.5 - 3.5

2017 -- 3.0 - 4.0

33

2008 2010 2012 2014 2015 2016 2017

33

Increase in the number of IMSS-insured jobs

(Thousands)

Report Previous Current

2015 560 - 660 640 - 710

2016 600 - 700 630 - 730

2017 -- 660 - 760

Output Gap% of potential output, s.a.


Economic Activity Outlook

GDP GrowthAnnual %, s.a.

s.a. / Seasonally adjusted data .Source: INEGI and Banco de México.2008 2010 2012 2014 2015 2016 2017

2015Q4

2017Q4

2016Q4

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4

2017Q4

2015Q4

2016 Q4

A new drop in Mexico’s oil production and/or its price.

A deterioration in international financial market conditions, propitiating anincrease in firms’ financial costs.

An additional deterioration in economic agents’ confidence in light of thepersistence of a weak economy and/or the absence of progress in thestrengthening of the rule of law.

Less dynamism of the automotive sector, given the problems that some of thesector’s participants have experienced at the global level.

A delay in the recovery of the U.S. industrial sector.

Further progress in the implementation of structural reforms.

Risks to the Growth Outlook:

Downward:

Upward:

34


A faster than expected U.S. recovery.

Core Inflation

20

15

20

16

35

At levels close to 3 percent.


Below 3 percent during the rest of the year.

Headline Inflation

20

17 Moderate downward trend, locating at levels closer to

3 percent at the end of the year.

Inflation Outlook

Annual Headline Inflation 1/

%Annual Core Inflation 2/

%

1/ Quarterly average of annual headline inflation.Source: INEGI and Banco de México.

2/ Quarterly average of annual headline inflation.Source: INEGI and Banco de México.

Fan Charts

Inflation is anticipated to remain below 3 percent during the rest of 2015,close to that level in 2016 and with a slight downward trend in 2017, beingcloser to 3 percent by the end of that year.

36

2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017


2015 Q4

2017 Q4

2016 Q4

2015 Q4

2017 Q4

2016 Q4

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

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

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

Observed

Headline inflation target

Variability interval

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

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

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

Observed

Headline inflation target

Variability interval

Downward Upward

That the depreciation propitiates priceincreases for a broad set of goods andservices, and contaminates inflationexpectations. As in the past, Banco deMéxico will be alert to avoid this fromhappening.

37

37

A lower than expected dynamism ofeconomic activity.

Risks to the Inflation Forecast:

That some goods and widely usedinputs continue exhibiting pricedecreases, in some cases as a result ofthe implementation of structuralreforms.

That the national currency reverts partof the depreciation accumulated in theprevious months.

That the gasoline price increases lessthan 3 percent next year.


38

Monetary Policy Stance

Considering the facts presented in this Report, Banco deMéxico’s Board of Governors will continue to monitor theperformance of all inflation determinants and its medium- andlong-term expectations, in particular:

The monetary stance of Mexico relative to the U.S.

The pass-through of exchange rate movements onto consumer prices.

The evolution of the degree of slackness in the economy.

All this in order to be able to take the necessary measures in aflexible manner and whenever conditions demand it in order toconsolidate the convergence of inflation to the permanent 3percent target.


Challenges to Strengthen Confidence in the Mexican Economy

39

Considering the complex international environment and the expectationsthat it will persist in the future, it is fundamental to maintain a solidmacroeconomic framework in Mexico. Therefore, in addition to the timelyadjustment of the monetary policy stance, it is necessary to:

Concretize the recently proposed efforts in the fiscal front.

Continue implementing structural reforms in an adequate and timely manner.

This will contribute to preserve an environment of confidence towards theMexican economy, distinguishing it from other emerging economies, suchthat the country risk component implicit in interest rates remains at lowlevels.

Finally, as mentioned on previous occasions, it is also necessary tostrengthen institutions and the rule of law, clearly implying an appropriatelegal framework, but especially, its enforcement and full compliance.


Documents

Quarterly Report - banxico.org.mxA... · Quarterly Report July –September 2015 After having converged to the permanent 3 percent target, headline inflation decreased further since