38
Regional Economic Report January – March 2015 June 11, 2015
Regional Economic ReportJanuary – March 2015
June 11, 2015
Outline
I. Regional Economic Report
II. Results January – March 2015
A. Economic Activity
B. Inflation
C. Economic Outlook
III. Final Remarks
Regional Economic Report
• The Regional Economic Report is a quarterly publication on recent trendsin economic activity, inflation and business agents’ expectations in theMexican regions.1
• The information is taken into account by Banco de México’s Board ofGovernors when evaluating the economic situation and the forecast forthe Mexican economy.
• The economic performance of the regions in 1Q 2015 and the prospectsfor regional economic activity and inflation over the following 12 monthsare analyzed herein.
2
1/ For the purposes of this Report, the states of Mexico are grouped into the following regions: Northern: Baja California, Chihuahua, Coahuila, NuevoLeón, Sonora and Tamaulipas. North-Central: Aguascalientes, Baja California Sur, Colima, Durango, Jalisco, Michoacán, Nayarit, San Luis Potosí,Sinaloa and Zacatecas. Central: Distrito Federal, Estado de México, Guanajuato, Hidalgo, Morelos, Puebla, Querétaro and Tlaxcala. Southern:Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, Tabasco, Veracruz and Yucatán.
I. Regional Economic Report
II. Results January – March 2015
A. Economic Activity
B. Inflation
C. Economic Outlook
III. Final Remarks
Outline
• In general, the growth rate in regional economies moderated during 1Q2015.
This was mainly attributed to stagnation of industrial activity, which, in turn, wasrelated to a lower dynamism of manufacturing production, the decrease in theexpansion rate of construction and weakness that was still registered in oilmining.
Nonetheless, the indicators of trade activity and of the services’ sector expandedduring the reference quarter.
• Agricultural production presented positive annual adjustments in 1Q 2015in most regions.
• In the analyzed quarter, the number of IMSS-affiliated job positions keptgrowing in all regional economies.
4
Economic Activity
5
Quarterly Indicator of Regional Economic Activity 1/
Index 2008=100
1/ This indicator’s values in 1Q 2015 are preliminary.Source: Estimated by Banco de México with seasonally adjusted data from INEGI.
In 1Q 2015, economic activity at the regional level kept presenting an upward trend in allregional economies. In the Southern region, economic activity continued observing signs ofweakness.
90
95
100
105
110
115
120
I2008
II III IV I2009
II III IV I2010
II III IV I2011
II III IV I2012
II III IV I2013
II III IV I2014
II III IV I2015
Northern North-Central Central Southern IGAE
Forecast
Regional Manufacturing Indicator 1/
Annual change in percent
6
1/ This indicator’s values in 1Q 2015 are preliminary.Source: Estimated by Banco de México with seasonally adjusted data from INEGI.
Manufacturing production kept observing positive growth rates in all regionaleconomies of Mexico, although they were smaller as compared to 4Q 2014, with theexception of the Northern region where the expansion rate was higher.
5.1 5.4
0.71.0
5.1
8.6
3.3
0.8
4.8
7.1
0.7
3.73.6
8.4
4.0
6.0
4.6
2.63.0
1.7
Northern North-Central Central Southern
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
Regional Contribution to Mining Activity Expansion 1/
Annual change in percent
7
1/ This indicator’s values in 1Q 2015 are preliminary.Source: Estimated by Banco de México with seasonally adjusted data from INEGI.
In 1Q 2015, mining activity kept observing unfavorable performance mainly related tothe evolution of oil mining in the Southern region.
-8
-6
-4
-2
0
2
4
6
8
I2009
II III IV I2010
II III IV I2011
II III IV I2012
II III IV I2013
II III IV I2014
II III IV I2015
Northern North-Central Central Southern National
8
Real Value of Production in the Construction Industry by RegionAnnual change in percent
In general, the growth rate of construction moderated in 1Q 2015. In the Northern andNorth-Central regions, the growth rates were very similar to those in 4Q 2014, in the Centralregion a slowdown was observed, while the Southern region presented a contraction.
Source: Estimated by Banco de México with seasonally adjusted data from INEGI.
5.2
-4.6-2.5 -3.3
4.5
-6.8-8.1
0.3
11.4
-4.4
9.2
-12.0
6.5
2.9
17.7
-14.3
6.8
3.5
11.4
-14.1
Northern North-Central Central Southern
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
9
Source: Estimated by Banco de México with seasonally adjusted data from INEGI.
Retail trade expanded in all regional economies. In the Northern and Central regions theobserved growth rates were even higher than in 4Q 2014.
Regional Indicator of Retail TradeAnnual change in percent
1.1
7.0
4.0
11.7
2.0
12.3
5.1
10.8
-1.6
6.2
2.1
5.0
0.2
3.6
0.7
3.3
4.3
2.9
4.1
0.6
Northern North-Central Central Southern
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
10
Hotel Occupancy Inflow of Passengers to Airports
Regional Indicators of Activity in TourismAnnual change in percent
Source: Estimated by Banco de México with seasonally adjusted data from the Mexican Secretariat of Tourism and from Airports and Auxiliary Services (ASA, for its Spanishacronym).
Tourism expansion continued in 1Q 2015, although at different rates across regions. Therecovery of the North-Central region, affected by the hurricane “Odile” in 4Q 2014, wasnoteworthy.
-40
-30
-20
-10
0
10
20
30
40
2009 2010 2011 2012 2013 2014 2015
Northern North-Central
Central Southern
Q I-40
-30
-20
-10
0
10
20
30
40
2009 2010 2011 2012 2013 2014 2015
Northern North-Central
Central Southern
Q I
11
Index of Regional Agricultural ProductionAnnual change in percent
Source: Estimated by Banco de México with data from SAGARPA.
Agricultural activity in central regions and in the south expanded as compared to the sameperiod of last year. It was associated with the favorable performance of both agriculturaland livestock production.
4.7 6.3
27.3
-3.0
0.1
12.5
2.5
-1.7
20.5 20.8
-1.3
3.23.7 3.6
-0.7
0.6
-0.9
3.8 3.65.0
Northern North-Central Central Southern
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
12
SuppliersOwn Resources Commercial Banks
Co
ntr
acti
on
Exp
ansi
on
Main Sources of Financing to FirmsDiffusion index
Source: Banco de México.
In four regions, businesses generally reported an increase in the use of financing, inparticular that granted by commercial banks.
5654
5854
57
52
57
52
0
10
20
30
40
50
60
70
80
90
Northern North-Central
Central Southern
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
4852
55 545552
55 56
0
10
20
30
40
50
60
70
80
90
Northern North-Central
Central Southern
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
56 5861
51
5653
5753
0
10
20
30
40
50
60
70
80
90
Northern North-Central
Central Southern
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
13
Number of IMSS-affiliated employmentsAnnual change in percent
Source: Estimated by Banco de México with seasonally adjusted data from IMSS.
In all regions, growth in the number of IMSS-affiliated job positions kept accelerating. Still,in the Southern region, the growth rates were smaller as compared to other regions.
2.5 2.5
3.0
2.3
3.33.1
3.5
2.6
4.2
3.83.9
2.4
4.64.2
4.6
2.2
5.0
4.7
5.0
2.5
Northern North-Central Central Southern
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
1Q 2Q 3Q 4Q 1Q' 2014 2015
I. Regional Economic Report
II. Results January – March 2015
A. Economic Activity
B. Inflation
C. Economic Outlook
III. Final Remarks
Outline
• Annual headline inflation went down considerably in early 2015 in allregional economies of Mexico.
This reduction was consequent on the conduction of the monetary policy,which anticipated the fading out of the effects of fiscal modifications of2014 onto inflation.
• Furthermore, the monetary authority remained alert so that inflationexpectations were not affected to avoid second round effects on theprice formation process of the economy.
• Additionally, lower prices of telecommunications services and lowerenergy prices contributed, both directly and indirectly, to the reduction inannual headline inflation in all regions, even when the exchange ratedepreciation of the national currency was considered.
15
Inflation
16
Source: Estimated by Banco de México with data from INEGI and Banco de México.
Annual Headline InflationData in percent
Annual headline inflation decreased considerably in early 2015 in all regions of Mexico.
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013 2014 2015
Northern North-Central Central Southern National
May
17
Source: Estimated by Banco de México with data from INEGI and Banco de México.
Annual Core InflationData in percent
Annual core inflation went down significantly in early 2015. In this regard, it is noteworthythat in all regions it lies at levels below those registered in 2013, prior to the incrementobserved in 2014, derived from the change in relative prices as a result of the fiscal changesin force since that year.
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013 2014 2015
Northern North-Central Central Southern National
May
Components of Annual Core Inflation Data in percent
18
Merchandise Services
Source: Estimated by Banco de México with data from INEGI and Banco de México.
Both merchandise and services’ prices observed considerable reductions in their annualgrowth rates at the beginning of 2015 and remain below 3 percent in four regions.
-1
0
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013 2014 2015
Northern North-Central
Central Southern
National
May-1
0
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013 2014 2015
Northern North-Central
Central Southern
National
May
19
Source: Estimated by Banco de México with data from INEGI and Banco de México.
Annual Non-core InflationData in percent
Non-core inflation also decreased in all regions during the first months of this year. Thisreduction was contributed to by lower growth rates of energy prices in general.
0
2
4
6
8
10
12
14
2009 2010 2011 2012 2013 2014 2015
Northern North-Central Central Southern National
May
I. Regional Economic Report
II. Results January – March 2015
A. Economic Activity
B. Inflation
C. Economic Outlook
III. Final Remarks
Outline
• Most business agents expect demand for their goods and services togrow in all regions of Mexico, although the sign of expansion weakenedwith respect to the previous quarter.
• The interviewed business contacts indicated that their expectations arebased on:
External factors: the prospect of sustained growth of the U.S.economy.
Domestic factors: the estimated positive effect of the Energy Reformon private investment and different projects in the sector.
21
Economic Outlook
22
The indicators of orders for the manufacturing and non-manufacturing sectors point tohigher levels of economic activity in all regional economies over the next months.
Regional Index of Manufacturing and Non-Manufacturing Orders: Outlook of Economic Activity, Next 3 Months 1/
Diffusion indices
Co
ntr
acti
on
Ex
pan
sio
n
Manufacturing Non-Manufacturing
1/ Seasonally adjusted data.Source: Banco de México.
58.1
58.9
57.8
59.4
57.8
59.2
57.4
56.558
.9
59.8
57.2 59
.6
59.3
59.9
58.3
58.7
0
10
20
30
40
50
60
70
80
Northern North-Central
Central Southern
Q II
I 20
14
Q II
201
4
Q IV
201
4Q
I 2
015
Q II
201
4Q
III 2
014
Q IV
201
4Q
I 20
15
Q II
201
4Q
III 2
014
Q I
V 2
014
Q I
2015
Q II
201
4Q
III
2014
Q IV
201
4Q
I 2
015
55.5 57
.1
56.8
53.356
.0
56.6
56.6
54.4
55.1
54.9
56.5
53.155
.4
54.5 56
.2
52.6
0
10
20
30
40
50
60
70
80
Northern North-Central Central Southern
Q II
201
4
Q II
201
4
Q IV
201
4Q
I 2
015
Q II
201
4Q
III 2
014
Q IV
201
4Q
I 2
015
Q II
201
4Q
III
2014
Q IV
201
4Q
I 2
015
Q II
201
4Q
III
2014
Q IV
201
4Q
I 2
015
23
Business Agents’ Expectations: Estimated Demand, Next 12 Months 1/
Diffusion index
1/ Results obtained from responses to the question: “With respect to the situation in the current quarter, how do you expect demand for own goods and services to change over thenext 12 months?”, from the interviews conducted by Banco de México.
Interviewed business contacts anticipate an expansion of demand for own goods andservices over the next 12 months. However, in general, the sign of expansion weakened withrespect to 4Q 2014.
Co
ntr
acti
on
Exp
ansi
on
92.987.5
85.0 84.689.9
85.387.6
83.7
0
10
20
30
40
50
60
70
80
90
100
Northern North-Central Central Southern
Q IV
20
14
Q I
20
15
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
24
In line with the estimated increase in demand for own goods and services, business contactsexpect an expansion in hired personnel and physical capital stock in their firms.
Business Agents’ Expectations: Hired Personnel andPhysical Capital Stock, Next 12 Months 1/
Diffusion indicesHired Personnel Physical Capital Stock
1/ Results obtained from responses to the questions: “With respect to the situation in the current quarter, how do you expect personnel hired by your firm to modify over the next 12months?”, and “How do you expect your firm’s physical capital stock to change over the next 12 months”, from the interviews conducted by Banco de México.
Co
ntr
acti
on
Exp
ansi
on
72.2 76.570.8 68.9
72.7 71.3
77.4
66.3
0
10
20
30
40
50
60
70
80
90
100
Northern North-Central
Central Southern
Q I
20
15
Q I
2015
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
2015
Q IV
20
14
Q IV
20
14
78.2 82.8
75.0 76.277.474.0
76.280.4
0
10
20
30
40
50
60
70
80
90
100
Northern North-Central
Central Southern
Q I
20
15
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q I
20
15
Q IV
20
14
Q IV
20
14
• Among upward risks to regional economic activity, in all regions businessagents indicated the following:
A greater dynamism of the U.S. economy.
A more favorable evolution of private investment, mainly in automobileand energy sectors.
• Moreover, across regions, business contacts mentioned the followingamong upward risks:
In the Northern and North-Central regions, the possibility of increasedcompetitiveness in manufacturing industry, related to the completion ofvarious gas pipelines that are currently under construction.
In the North-Central and Southern regions, a more favorable performancein tourism.
In the Central region, the risk that a low crude oil price may generatefurther reductions in some input prices in automobile industry and higherautomobile exports.
25
Economic Outlook
Box: Development of Gas Pipeline Network and Potential Benefits for Regional
Manufacturing Industry• As part of the Energy Reform, infrastructure projects seeking to expand the national
network of gas pipelines offer significant potential to boost competitiveness of themanufacturing sector, by means of increasing the natural gas supply at a lower price.
• This Box illustrates the importance of two pipelines, the Los Ramones Pipeline PhaseII and the North-West Gas Pipeline, that are currently under construction. Themanufacturing branches that could benefit the most from the completion of thesetwo projects are also indicated in the Box.
• It should be stressed that for the possible benefits of these projects to indeedtake effect, the regulation needs to lead to an efficient operation of the nationalgas network, so that this energy supply to domestic market would be underconditions aligned to international standards.
26
Box: Development of Gas Pipeline Network and Potential Benefits for Regional
Manufacturing Industry
27
Natural Gas Pipelines
Source: Prepared by Banco de México with data from PEMEX and the Federal Electricity Commission.
28
Box: Development of Gas Pipeline Network and Potential Benefits for Regional
Manufacturing Industry
1/ The manufacturing branches with the highest energy consumption are considered: iron and steel; concrete; petrochemical; chemical; pulp, paper andcardboard; glass; beer; soft drinks, ice and non-alcoholic beverages; cars and trucks; rubber products; fertilizers; and tobacco products.
2/ Oil products consumption includes liquid gas, gasolines and naphthas, kerosenes, diesel and fuel oil. In turn, the category “Rest” is composed of solar energy,cane bagasse, carbon and coke.
Source: Estimated by Banco de México with data from Energy Information System of the Ministry of Energy.
Share of Natural Gas in Main Manufacturing Branches’ Energy Consumption 1/ 2/
Percent
20132003
Oil16.6
Natural gas44.8
Electricity15.3
Rest23.3
Oil5.1
Natural gas51.8Electricity
14.8
Rest28.3
Box: Development of Gas Pipeline Network and Potential Benefits for Regional
Manufacturing Industry
29
Share of Natural Gas in Main Manufacturing Branches’ Energy Consumption, 2013 1/
Percent
1/ Manufacturing branches with the highest energy consumption are considered.Source: Estimated by Banco de México with data from Energy Information System of the Ministry of Energy.
0
20
40
60
80
100Total manufacturing
Sugars
Concrete
Non-alcoholic beverages
Cars and trucks
Fertilizers
Tabacco products
Iron and steel
Rubber products
Pulp, paper and cardboard
Beer
Chemical
Glass
Petrochemical
30
Box: Development of Gas Pipelines and Potential Benefits for Regional
Manufacturing Industry
Share of Natural Gas in Main Manufacturing Branches’ Energy Consumption
Source: Estimated by Banco de México with data from Energy Information System of the Ministry of Energy (2013) and Economic Censuses 2009 of INEGI.
Branches most intensively usingnatural gas could benefit fromhigher supply of the saidenergy.
In turn, branches using it lessintensively will possibly benefitby replacing their currentenergy sources with naturalgas.
For the benefits derived fromthe expanded network of gaspipelines to take effect, aregulation is required, thatwould lead to an efficientoperation of the gas pipelinenetwork.
0 20 40 60 80 100
Sugars
Concrete
Non-alcoholic beverages
Cars and trucks
Fertilizers
Tabacco products
Iron and steel
Rubber products
Pulp, paper and cardboard
Beer
Chemical
Glass
Petrochemical
Regional distribution of added value
Shar
e o
f n
atu
ral g
as in
to
tal e
ner
gy
con
sum
pti
on
Northern North-Central Central SouthernHigher share
Lower share
• Among downward risks to regional economic activity, interviewedcontacts in four regions indicated the next:
The possibility of a further deterioration in the perception of publicsafety.
New episodes of exchange rate volatility.
A further fall in international oil prices with a consequent effect ongovernment investment.
A possible slowdown of the U.S. economic activity.
31
Economic Outlook
• As regards inflation expectations for the next 12 months, mostinterviewed contacts in four regions of Mexico anticipate annualchanges in sales prices of their goods and services to be lower than in2014.
• Moreover, the referred business agents expect annual growth rates ininput prices and wage costs lower than in the previous year.
32
Economic Outlook
33
Business Agents’ Expectations: Dynamics of Annual Inflation in Sales Prices, Next 12 Months 1/
Diffusion index
Dec
reas
eIn
crea
se
1/ Results obtained from responses to the questions: “With respect to the situation in 1Q 2015, do you expect any adjustment in sales prices of own goods andservices over the next 12 months?” and “As compared to the same period of last year, what magnitude of adjustment do you expect: greater, same orlower?”, from the interviews conducted by Banco de México.
In all regional economies, interviewed business agents anticipate, in general, annual changes intheir sales prices to be smaller than in 2014. In the North-Central and Southern regions, the signof lower annual growth rates in their prices even intensified with respect to the previous quarter.
0
10
20
30
40
50
60
70
80
90
100
I2013
II III IV I2014
II III IV I2015
Northern North-Central Central Southern
34
Business Agents’ Expectations: Dynamics of Annual Inflation of Input Prices and Wage Costs, Next 12 Months 1/
Diffusion index
Input Prices Wage Costs
Dec
reas
eIn
crea
seMost interviewed business agents expect annual changes in input prices and wage costs tobe lower than in 2014.
1/ Results obtained from responses to the question: “With respect to the situation in 1Q 2015, do you expect any adjustment in input prices and wage costs overthe next 12 months?”, and “As compared to the same period of last year, what magnitude of adjustment do you expect: greater, same or lower?”, from theinterviews conducted by Banco de México.
0
10
20
30
40
50
60
70
80
90
100
IV I2013
II III IV I2014
II III IV I2015
Northern North-Central
Central Southern
0
10
20
30
40
50
60
70
80
90
100
IV I2013
II III IV I2014
II III IV I2015
Northern North-Central
Central Southern
I. Regional Economic Report
II. Results January – March 2015
A. Economic Activity
B. Inflation
C. Economic Outlook
III. Final Remarks
Outline
Final Remarks❶ In general, economic activity in regional economies continued expanding in
1Q 2015, although this growth moderated with respect to 4Q 2014.
❷ Annual headline inflation decreased significantly in early 2015 in all regionsof Mexico. Besides the monetary policy stance, lower telecommunicationsservices prices and energy prices also contributed, both directly andindirectly, to lower inflation in all regional economies.
❸ Business agents interviewed by Banco de México expect demand for owngoods and services to expand over the next 12 months in all regions,although this sign weakened as compared to last quarter.
❹ As regards inflation, business contacts anticipate that during the following 12months annual growth rates of their prices will be lower than observed inthe same period of last year.
36
June 2015
