The Mexican Economic Outlook After Structural Reforms

KEYNOTE SPEAKER

Jonathan Heath

Independent Advisor

Jonathan Heath & Asociados

#WSGEVENTS2015

The Mexican Economic Outlook: Will growth improve after reforms?

Jonathan Heath

2015 Latin America Regional Meeting JW Marriott Hotel

Mexico, Distrito Federal February 27, 2015

GDP Growth: Mexico vs. United States

Seasonally Adjusted Annualized Rate (SAAR) Source: INEGI and Bureau of Economic Analysis

EPN’s Structural Reforms

1. Labor 2. Energy 3. Fiscal 4. Financial 5. Telecomunicactions 6. Judicial 7. Political/Electoral 8. Education 9. Transparency 10.Competition

Manufacturing Production Mexico vs United States (January 2008=100)

Last update: January 2015 for United States and December 2014 for Mexico Source: INEGI and Federal Reserve

Manufacturing Production Mexico vs United States (January 2012=100)

Last update: January 2015 for United States and December 2014 for Mexico Source: INEGI and Federal Reserve

Automobile Exports

Exported units, updated through December 2014 Source: Asociación Mexicana de la Industria Automotriz (AMIA)

Automotive Industry Exports

Million dollars, seasonally adjusted data through December 2014 Source: INEGI

Non Automotive Manufacturing Exports

Million dollars, seasonally adjusted data through December 2014 Source: INEGI

Peso-Dollar Exchange Rate 2008-2015

Pesos per dollar, uptaed through February 25, 2015 Source: Banco de México

Construction Industry

Base 100 = 2008, seasonally adjusted data updated through December 2014 Source: INEGI

Main Construction Segments

Base 100 = Julio 2012, Trend-Cycle updated through December 2014 Source: INEGI

SHCP: Real Programable Spending 2009-2014

Real growth 12-month moving average of monthly flows, updated through December 2014 Source: Public Finance Report of Banxico with data from the SHCP (Mexican Finance Ministry)

SNA: Real Public Spending 2009-2014

Base 100 = first quarter 2009, updated through thrid quarter 2014 Source: System of National Accounts of INEGI

SHCP: Real Public Investment Growth 2009-2014

Real growth 12-month moving average of monthly flows, Updated through November 2014 Source: Public Finance Report of Banxico with data from the SHCP (Mexican Finance Ministry)

SNA: Public Investment 2009-2014

Millions of Pesos of 2008, updated through third quarter 2014 Source: System of National Accounts of INEGI

SNA: Private Investment 2009-2014

Billion 2008 pesos, updated through third quarter 2014 Source: System of National Accounts of INEGI

Confidence Indicators

Seasonally adjusted data, updated through January 2015 Source: personal calculations with oficial data from INEGI

Retail Sales

New Base 100 = 2008, seasonally adjusted data updated through December 2014

Source: INEGI

Household Consumption

Base 100 = 2008, Seasonally adjusted data, updated through November 2014 (Retail Sales) and December 2014 (consumption) Fuente: INEGI

Unemployment Rate

Seasonally adjusted data upthrough December 2014 Source: INEGI

Unemployment: historical perspective (1987-2014)

Urban unemployment rate, data December 2014 Source: Own calculations based on data from INEGI

Average Real Income

Average real income calculated with data from Monthly Employment Survey of INEGI Source: Own calculations based on data from INEGI

Growth Expectations 2015 2016

Official SHCP 3.7% 4.9%

Official Banxico 3.0% 3.4%

IMEF Survey 3.1% 3.5%

Central Bank Survey 3.3% 3.8%

Banamex Survey 3.1% 3.5%

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Vector 2.3% 2.5%

BNP-Paribas 3.9% 3.7%

Banorte 3.6% 4.3%

Major Risk Factors for 2015-16 • Upside:

– More public spending and construction

– Mid-term elections

– Improvement US economy

– Less uncertainty regarding reforms

• Downside: – No changes in Tax Reform

– No improvement in purchasing power

– Uncertainty involving Federal Reserve monetary policy

– Difficult geopolitical international environment

– Weaker oil prices

– Lags in structural reform implementation

Macroeconomic Framework 2015-2016

2014 2015 2016

GDP Growth 2.1% 3.0% 3.8%

Inflation (end period) 4.1% 3.1% 3.3%

Traditional fiscal balance (% of GDP) -3.2% -3.2% -3.2%

Monetary Policy Rate (end of period) 3.0% 3.5% 4.75%

Exchange rate (end of period) 14.74 14.54 15.04

Current account balance (% of GDP) -2.1% -2.7% -2.8%

Growth Expectations for Lain America

2014 2015 2016

Argentina -1.5 -0.3 2.0

Brasil 0.0 -0.3 1.6

Chile 1.8 2.7 3.5

Colombia 4.8 3.7 3.9

Mexico 2.1 3.0 3.6

Panama 6.3 6.3 6.3

Peru 2.6 4.3 5.1

Uruguay 3.3 3.3 3.5

Venezuela -3.7 -5.3 -1.3

Source: Consensus Economics

Thank you

@jonathanheath54

#WSGEVENTS2015