Outlook on Mexico
So far, a tale of macro stability but still moderate growth: what is the outlook? Jorge Sicilia, BBVA Research GIC Meeting Monterrey, 1 February 2016
Global Economic Scenario / 28 January 2016
Contents 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
Page 2
Global Economic Scenario / 28 January 2016
The long and winding road 10.0 8.0 6.0 4.0 2.0 0.0 - 2.0 - 4.0 - 6.0 - 8.0
Structural Reforms
NAFTA
Debt crisis
Oil crisis
USD at an alltime high
Lehman crisis
Tequila crisis
Inflation at an alltime low
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
1986
Mexico joins GATT
1993
Central bank autonomy
1994-95
Flexible exchange rate
1997
2000
Ruling party loses presidency
Ruling party loses lower house majority
2013
Structural reforms: Telecom, Labor Financial, Antitrust, Education Page 3
Global Economic Scenario / 28 January 2016
Strengths: (i) highly integrated to the US economy Manufacturing
Exports by destination in 2014
Source: BBVA Research
Source: BBVA Research
(Annual percentage change, sa)
(structure, %)
7
100
6
90 80
5
80.2
70
4
60
3
50
2
40 30
1
20
U.S.
Jan-15
Sep-14
Nov-14
Jul-14
Mar-14
May-14
Jan-14
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
0
May-11
-1
Jan-11
10 Mar-11
0
9.1
USA
Rest of America
5.1
4.4
Europea Union
Asia
1.1 Rest of Countries
Mexico
Page 4
Global Economic Scenario / 28 January 2016
Strengths: (ii) with an export structure relying less on petroleum and more on manufacturing Mexican exports
Mexican manufactured exports
Source: BBVA Research with INEGI data.
Source: BBVA Research with INEGI data.
(% share in total exports)
10
10
0
0
Petroleum exports
Non-petroleum exports
2014
20
2012
20
2010
30
2008
30
2006
40
2004
40
2002
50
2000
50
1998
60
1996
60
1994
70
1992
70
1990
80
1988
80
1986
90
1984
90
1982
100
1980
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(% share in total exports)
Automotive
Non-automotive
Page 5
Global Economic Scenario / 28 January 2016
Strengths: (iii) A very open economy (with free trade agreements with more than 50 countries) Openness index and trade balance
Exports of light vehicles
Source: BBVA Research with INEGI data.
Source: BBVA Research with AMIA data.
(% share in GDP)
(units in millions, 12mma)
70
10
60
8 6
50
4
40
2.5
2
1.5
2 30
0
20
1
-2
Trade balance - right axis
2014
2012
2010
2008
2006
2004
2002
2000
Imports share in GDP
0.5
0
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
Exports share in GDP
1998
1996
1994
1992
1990
1988
1986
-6
1984
0
1982
-4
1980
10
Exports of light vehicles
Page 6
Global Economic Scenario / 28 January 2016
Strengths: (iv) A sound and solvent banking system Bank's Capital Adequacy Ratio, %
Non-performing loans (NPL) and Provision coverage (PC) ratios
Source: CNBV
15,0
15,8
15,5
15,9
10 15,7
16,9
16,5
15,3
16,0
16,1 14,3
14,1
14,2
15,4
Source: CNBV
300 250
8 PC
200
6
150
Basel III minimum: 10.5%
140,5
2
2,6
Non-Performing Loans
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
NPL Dec-02
nov-15
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
Dec-01
BIS minimum: 8%
4
Dec-00
CNBV minimum to avoid "early-warnings�: 10%
100 50 0
Provision Coverage (PC) 7
Global Economic Scenario / 28 January 2016
Weaknesses: (i) Low GDP per capita (stable relative with the US) with no contribution from TFP Potential GDP growth (%) Source: own estimation
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2 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
Total Factor Productivity
Capital
Potential GDP Page 8
Global Economic Scenario / 28 January 2016
Weaknesses: (ii) relatively high informality and an improvable legal environment… Total and formal private employment (figures in millions of workers)
Informal economy and legal environment (% of GDP and Index)
Source: BBVA Research with data of INEGI
Source: Schneider (2009) and Property Rights Alliance with World Bank data
55
70
50
Perú
60
3Q15 Diference :Total IMSS = 35.4 million persons
40
1Q05
35
Diference: Total -
30
IMSS = 30.3 million persons
25
Informal economy (% of GDP)
45
20 15 10 5
50 Brasil 40 México
30 20
España China
10
IMSS Employment
EEUU
III
I-15
III
III
Labor Force
I-14
I-13
III
I-12
III
III
I-11
I-10
III
I-09
III
I-08
III
I-07
III
I-06
III
I-05
0
0 2
3
4
5
6
7
Index of legal environment (max=10)
8
9 Page 9
Global Economic Scenario / 28 January 2016
Weaknesses: (ii) ‌ keeps productivity and investment down Informal economy (% of GDP) and ‌ Capital
Productivity
Source: Schneider (2009) and Hall and Jones (1998)
Source: Schneider (2009) and Hall and Jones (1998)
70
Informal economy (% of GDP)
70 Peru
60
Peru
60 50
50 Brazil
40
20
20
Spain
China
US
0 0.4
0.6
0.8
Spain
10
10
0.2
Mexico
30
Mexico
30
Brazil
40
1
Capital (relative to the US)
China US
0 1.2
1.4
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Productivity (relative to the US) Page 10
Global Economic Scenario / 28 January 2016
Weaknesses: (iii) ‌ and prevents wages from growing. At the same time, inequality is high Quarterly monetary current income by decile (% of total income) Source: BBVA Research with data from INEGI
Income Inequality, Gini Index. OECD countries Gini coefficient, 0 = complete equality; 1 = complete inequality, Source: OECD, 2012 0,50
0,45
35.3
37.2
37.4
0,40
0,35
0,30
16.6
16.4
16.1 0,25
12.1
11.8
11.4
0,20
9.4
9.0
9.1
0,15
7.5
7.2
7.2
0,10
6.1
6.0
5.9
4.9
4.7
4.8
3.7
3.8
3.9
2.8
1.4
2010 Income deciles:
2.6
1.4
II
III
IV
2.8
1.5
2012 I
0,05
0,00
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 MEXICO
100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
2014 V
VI
VII
VIII
IX
X Page 11
Global Economic Scenario / 28 January 2016
Weaknesses: (iv) Traditional and total public sector balance has remained high as proportion of GDP Traditional and total public sector balance (% of GDP)
Total public sector gross debt (% of GDP)
Source: BBVA Research with data of Ministry of Finance (SHCP)
Source: BBVA Research with data of Ministry of Finance (SHCP) 5.0
48
4.5
45.7
46
4.0
44
3.5
42
41.0
3.0
40
2.5
38.8
38
2.0
36
1.5 1.0
34
0.5
32
0.0 2009
2010
2011
Traditional Balance
2012
2013
2014
2015
36.4 34.6
34.9
35.3
2009
2010
2011
30 2012
2013
2014
2015
Total Balance
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
Regional and national GDP per capita (Compounded annual growth rate %) Source: BBVA Research with INEGI data
Source: BBVA Research with INEGI data 3
125
2.5 120 2 115
1.5
110
1 0.5
105
Touristic
National
Low Development
2015e
2013p
2014e
Industrial Medium Development National
Medium Development
Touristic High Development Low Development
2012
2011
2010
95
Industrial
100
High Development
0
GDP per capita compounded annual growth rate 2003-2014 (%)
Regions are divided by economic vocation and level of development: High Development: DF; Touristic: BCS and Q Roo; Industrial: Ags, BC, Coah, Chih, Jal, MĂŠx, 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. Page 13
Global Economic Scenario / 28 January 2016
Contents 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
Page 14
Global Economic Scenario / 28 January 2016
In this recovery, GDP growth has been lower than expected and relied mainly on consumption GDP’s contribution to growth by component (percentage points of total growth Source: BBVA Research with data of INEGI)
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 - 9.0 - 10.0 - 11.0 - 12.0
7.0 4.7
5.9
4.7
2.7
5.3
4.3
0.1
5.0 3.0
3.1
5.1 1.4
4.0
4.0
2.5 1.3
1.4
2.3
- 0.6 Consumption has been the main driver of GDP growth
- 4.7
- 5.8 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 Page 15
Global Economic Scenario / 28 January 2016
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.
3,0 Focus on
1,5
Jan-16
Jan-15
Emerging
Jan-14
Jan-13
Developed
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
-1,5
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
US
#
# # # # # # #
EMU
#
# # # # # # #
Latam
#
# # # # # # #
Brazil
#
# # # # # # #
Chile
#
# # # # # # #
Colombia
#
# # # # # # #
Mexico
#
# # # # # # #
Peru
#
# # # # # # #
EMEA
#
# # # # # # #
Czech Republic
#
# # # # # # #
Hungary
#
# # # # # # #
Poland
#
# # # # # # #
Russia
#
# # # # # # #
Turkey
#
# # # # # # #
#
# # # # # # #
China
#
# # # # # # #
India
#
# # # # # # #
Indonesia
#
# # # # # # #
Korea
#
# # # # # # #
Malaysia
#
# # # # # # #
Philippines
#
# # # # # # #
Taiwan
#
# # # # # # #
Thailand
#
# # # # # # #
Asia
0,0
Feb-15
4,5
Jan-15
Dec-14
Source: BBVA Research
Very high
Low
High
Very low
Neutral
No data
Page 16
Global Economic Scenario / 28 January 2016
Recent developments in financial markets: evolving like other “crisis” EM BBVA footprint FX performance vs USD (Base 100 January 2015) Source: Bloomberg and BBVA Research
BBVA Research Volatility Index: by assets Source: BBVA Research
110
Fixed income
105 100 95 90
Equity
85
Credit
80 75 70 65 60 Jan-15
Depreciation vs. USD
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
FX August 2013, 2nd taperging talks August 2015 episode
ARS
CLP
COP
MXN
PEN
BRL
Current Page 17
Global Economic Scenario / 28 January 2016
Recent developments in financial markets: pressure on ratings not focused on Mexico Agencies’ rating downgrade pressure gap (January 2016)
(difference between CDS-implied rating and actual sovereign rating, in notches) Source: BBVA Research
3 2 1 0 -1 -2 -3 -4
This Quarter
1 Qu arter ag o
Philippines
Malaysia
Indones ia
Thailand
China
Korea
Arg entina
Peru
Colombia
Chile
Brazil
Mexico
Croatia
Romania
Bulg aria
Hung ary
Cz ech Rep
Poland
Russia
Turkey
Ireland
Portug al
Greece
Belg ium
Spain
Italy
France
Netherlands
-6
Germ any
-5 Austria
Strong downgrade pressure
4
Sweden
Downgrade pressure
5
Norway
Neutral
6
UK
Upgrade pressure
-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
USA
Strong upgrade pressure
1 Year ago
Page 18
Global Economic Scenario / 28 January 2016
But risk perception is starting to rise Emerging-markets CDS
Emeging markets CDS change
bp
Year-to-date, bp
Source: BBVA Research, Bloomberg
Source: BBVA Research, Bloomberg
500
60
450
50
400 350
40
300 215
250 200 150 100 50
30 20 10
Brz (Baa3 )
S Kor (Aa3 )
Chil (Aa3 )
Tur (Baa3 )
Thai (Baa1 )
Mal (A3 )
Per (A3 )
Mx (A3 )
S Kor (Aa3 )
Chil (Aa3 )
Thai (Baa1 )
Mx (A3 )
Mal (A3 )
Per (A3 )
Tur (Baa3 )
Col (Baa2 )
Brz (Baa3 )
Col (Baa2 )
0
0
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 %
M10 and 10yT yields
Source: BBVA Research, Bloomberg
Last two months, % Source: BBVA Research, Bloomberg
6 .4 0
5 .5
1 .9
5 .3
1 .7
6 .1 5
5 .1
1 .5
6 .1 0
M1 0 , lhs
1 0 y T, rhs
2 .3 5 2 .3 0
6 .3 5
2 .2 5 2 .2 0
2 .1 5 2 .1 0
6 .2 0
2 .0 5
2 .0 0 1 .9 5
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 -Jan 15 -Jan 18 -Jan 21 -Jan
Jan-16
2 .1
Nov-15
5 .7
Sep-15
6 .2 5
Jul-15
2 .3
May-15
5 .9
Mar-15
2 .5
Jan-15
6 .1
6 .3 0
Nov-14
2 .7
Sep-14
6 .3
Jul-14
2 .9
May-14
6 .5
Mar-14
3 .1
Jan-14
6 .7
M1 0 , lhs
1 0 y T, rhs
Page 20
Global Economic Scenario / 28 January 2016
Very recent developments show too high volatility in the MXN depreciation: no fear of floating? 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
18.0
FED-led uncertainty
17.5 17.0
114
Concerns over China's cycle
112 110
FED-led uncertainty
16.5
108
16.0 OPEP denies oil production cut
15.5
106
104
15.0
102
14.5
100 Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
14.0
98 1-Dec
8-Dec 15-Dec 22-Dec 29-Dec 5-Jan OilExporting
HighLiquidity
12-Jan 19-Jan MXN
* Oil exporting countries: Brazil, Colombia, Russia, Norway, Canada. High liquidity currencies: South Korean Won, Singapore dollar, Taiwan dollar and Hong Kong dollar. Page 21
Global Economic Scenario / 28 January 2016
So far, so good: as opposed to peers, inflation in Mexico is likely to remain comfortably on target Inflation in inflation-targeting (IT) countries
Inflation in IT countries
%YoY
%YoY
Source: BBVA Research, Bloomberg, Central Banks
Source: BBVA Research, Bloomberg, Central Banks
12
12
10
10
8
8
6 4
6
2
4 Jun-1 5 Dec-1 5 Jun-1 6 Dec-1 6 Jun-1 7 Dec-1 7
Jun-1 5 Dec-1 5 Jun-1 6 Dec-1 6 Jun-1 7 Dec-1 7
Jun-1 5 Dec-1 5 Jun-1 6 Dec-1 6 Jun-1 7 Dec-1 7
Brasil
Chile
Colombia
Perú
Jun-1 5 Dec-1 5 Jun-1 6 Dec-1 6 Jun-1 7 Dec-1 7
Jun-1 5 Dec-1 5 Jun-1 6 Dec-1 6 Jun-1 7 Dec-1 7
0
2
México
0 Inflation targ et
BRA
CHI
COL
PER
MEX
Forecast
CB's target range
Current inflation (Jan -16)
Forecast (Dec -16)
Page 22
Global Economic Scenario / 28 January 2016
In Mexico the pass-through is limited and the peso seems to have overreacted compared to fair value Pass through to inflation from a 1% depreciation of the exchange rate to the USD
Exchange rate vs USD: overundervaluation (%) Source: BBVA Research
Source: BBVA Research 0.40 overvaluation
30
0.35 0.30 0.25 0.20
20
10
0
undervaluation
0.15 0.10 0.05 0.00
BRA
may-15
may-14
CHI
COL
MEX
PER
URU
-10
-20
-30 ARG
BRA
CHI Jan-16
COL
MEX
PER
Oct-15
Page 23
Global Economic Scenario / 28 January 2016
Financial markets: What can we read from recent developments and if so, how does Mexico fare? belated IsIsit ita abelated re-pricing ofFed´s the re-pricing of the Fed´s liftoff? liftoff?
Is it the threat of risk scenarios going forward in this new world?
Unlikely!
Is it a downward revision of the baseline global outlook?
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.
Page 24
Global Economic Scenario / 28 January 2016
Financial markets: Are they pricing a 2nd round of tail risks on corporates, sovereign & quasi-sovereign? EM Corporate debt index
EM Corporate bond index
Source: JP Morgan BBVA Research,
Source: JP Morgan, BBVA Research
(spread bp)
(spread bp)
US: estimated probability of default in the Oil and Gas sector Source: Bloomberg and BBVA Research
2.000
1.200,0
1.800 1.600 1.400
1.000,0
100%
800,0
80%
600,0
60%
400,0
40%
200,0
20%
+ 29%
1.200 1.000 800 600 400
+ 36%
+ 32%
+ 10% + 5%
+ 7%
200
0% Jan-09
Jan-11
CEMBI Mexico
CEMBI Brazil
CEMBI Chile
CEMBI Peru
Jan-13
Jan-15
CEMBI Colombia
Current porbability of default
Integrated
CEMBI EM Europe
0,0 Jan-07
Equip. & Serv.
May-15
Refining & M.
CEMBI Latam
May-13
Stor. & Transp.
CEMBI Asia
May-11
Expl. & Prod.
May-09
Drilling
0 May-07
01/07/2015
(*) 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% Page 25
Global Economic Scenario / 28 January 2016
The direct impact of China’s slowdown on Mexico should be quite small Mexico, exports of goods to its partners
FDI to Mexico by country
(Top 10 trade partners, millions, US dollars)
(% of total, 2014)
US
US
Canada
Spain
China
Canada
Spain
Germany
Brazil
Netherlands
Colombia
Japan
Germany
France
India
Other
Japan
China
Netherlands
Source: BBVA Research, WEO
Source: BBVA Research, SE
Page 26
Global Economic Scenario / 28 January 2016
Is Mexico too dependent on oil?‌ a deficit in oil trade balance, a higher current account deficit Monthly oil trade balance
Current account balance
Source: BBVA Research with data of INEGI
Source: BBVA Research with data of INEGI and Bank of Mexico
(figures in USD millions) 2,500
(% of GDP)
0.0
2,000
-0.5
1,500
-0.4
-1.0
-0.8
-0.8
1,000
-0.9
-1.1
-1.1
-1.1
-1.5
500 -2.0
-2.5
-2.4
-2.4
-2.4
-2.7
-3.0
-1,000
-1.9
-1.9
-2.0
0 -500
-1.3
-1.4
-3.1 2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
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
1998
-3.5
-1,500
-3.2
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 24 22 20 18 16 14 12 10 8 6 4 2 0 2009
2010
2011
2012
2013
Total Revenues
Total Oil Revenues
Federal Government Oil Revenues
Pemex Oil Revenues
2014
2015
Page 28
Global Economic Scenario / 28 January 2016
How vulnerable are emerging countries? Emerging countries: vulnerability radar 2015
(Relative position for the emerging developed countries. Max risk=1, Min risk=0) Source: BBVA Research
Emerging Europe 1
Mac
1
2
21
0 .9
3
0 .8 0 .7
19
4
0 .6
5
Assets
6
5
0 .4
18
0 .0
16
7
15 14
0 .0
7
8 14
9 13
10
External
External debt is the most worrisome vulnerability together with corporate debt
0 .2 0 .1
17
6
0 .0
16
7
15
8 14
9 13
10 12
11
Risk to monitor
6
15
9 13
0 .1
16
8
5
0 .3
0 .2
17
4
0 .6 0 .5
10
12
11
External
Assets
0 .7
0 .3
0 .1
3
0 .8
19
0 .4
18
0 .2
High risk
0 .9
0 .5
0 .3
12
4
0 .6
2
1 .0
20
0 .7
19
0 .4
17
3
0 .8
0 .5
18
21
0 .9
ro
1
2
1 .0
20
Mac
ro
Assets
20
Mac
ro
1 .0
Emerging Asia
11
External
21
LatAm
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
Safe
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
Page 29
Global Economic Scenario / 28 January 2016
How vulnerable is Mexico? Emerging countries: vulnerability radar 2015
(Relative position for the emerging developed countries. Max risk=1, Min risk=0) Source: BBVA Research
Mexico
Brazil
Mac ro
ro
1 21
1
2
1 .0
21
0 .9
20
3
0 .8
4
0 .6
0 .9
0 .7
19
5
0 .4
18
0 .1
6
0 .0
16
7
15
8 14
9 13
10
0 .2 0 .1
17
6
0 .0
16
7
15
8 14
9
13
11
10 12
External Risk to monitor
Assets
0 .2
High risk
5
0 .3
11
External
Assets
0 .3
12
4
0 .6 0 .5
0 .4
17
3
0 .8
0 .5
18
2
1 .0
20
0 .7
19
Mac
Safe
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
Page 30
Global Economic Scenario / 28 January 2016
Foreign currency debt by Mexican firms
Corporte vulnerability is limited Bank loans in foreign currency by term to maturity (3Q15)
Pass due loans (IMOR) of corporates for local and foreign currencuy loans (%)
Thousand million real and % of total
23.7%
400 20.0%
350 18.5% 300
15.3% 12.2%
10.2%
4.0
3.5 20.0%
250
15.0%
3.1
2.5 2.0
10.0%
150
3.0
1.5 1.0
100
5.0%
50 0
0.0%
Menos Hasta Hasta Hasta Hasta 5 años Total de 1 1 año 2 años 3 años 4 años o más año
Nacional
Fuente: BBVA Research
Extranjera
Porcentaje del total
0.6
0.5 0.0
ene-08 jul-08 ene-09 jul-09 ene-10 jul-10 ene-11 jul-11 ene-12 jul-12 ene-13 jul-13 ene-14 jul-14 ene-15 jul-15
200
25.0%
IMOR ME
IMOR total (MN + ME)
31
Global Economic Scenario / 28 January 2016
Contents 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
Page 32
Global Economic Scenario / 28 January 2016
A few comments on the reforms Telecommunications and competition reform
New entrants and new benefits
Energy reform
It is more than petroleum
Education
Key but so many things to fix
What is missing?
Page 33
Global Economic Scenario / 28 January 2016
The ease of doing business has improved with structural reforms Ease of doing business in Mexico
(0-100 scale, 0= worst performance, 100 = the frontier) Source: BBVA Research with WB data.
Ease of doing business in various countries
(0-100 scale, 0= worst performance, 100 = the frontier) Source: BBVA Research with WB data.
74.0
80 70
73.5
60
73.0
50 40
72.5
30
72.0
20
69.5 2014
2015 Distance to Frontier
2016
India
Argentina
Brazil
Regional average (LA and Caribbean)
70.0
China
70.5
Chile
Mexico
0 71.0
Colombia
10
71.5
Distance to Frontier (2016)
Page 34
Global Economic Scenario / 28 January 2016
Where are we? 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 Page 35
Outlook on Mexico
So far, a tale of macro stability but still moderate growth: what is the outlook? Jorge Sicilia, BBVA Research GIC Meeting Monterrey, 1 February 2016