2020 Macro Prospects - banxico.org.mx

2020 Macro Prospects

February 13th, 2020HSBC 8th Annual Mexico Opportunities ForumAlejandro Díaz de León-Carrillo, Governor, Banco de México*

*/ The opinions and views expressed herein are the sole responsibility of the author and do not necessarily represent the institutional stance of Banco de México or of its Governing Board.

1

2

3

4

Índice

5

Inflation and monetary policy

Economic outlook

Mexican economy

External conditions

Final remarks


Outline

1

World GDP GrowthAnnual % change, s. a.

s. a. / Seasonally adjusted figures.Note: Figures for Q4 2019 include estimations for some countries. The sample of countriesused in the calculations accounts for 85.6% of world GDP measured by purchasing powerparity.Source: Prepared by Banco de México with data from Haver Analytics, J.P. Morgan andInternational Monetary Fund (IMF).


❶ Global slowdownDuring 2019, the world economy continued to decelerate. This reflected the effects of: 1) prolonged tradetensions; 2) high geopolitical risks; and, 3) certain idiosyncratic factors in several economies.

Activity IndicatorsAnnual % change of 3-month

moving average, s. a.

Consumer and Business Confidence of the Manufacturing Sector 1/

Standard deviations of the average 2/

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

20

20

-6

-4

-2

0

2

4

6

8

10

12

-2

-1

0

1

2

3

4

5

6

7

20

15

20

16

20

17

20

18

20

19

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

s. a. / Seasonally adjusted figures.Source: CPB Netherlands.

1/ Refers to expectations about manufacturing production in the coming months. The indexincludes 7 and 17 advanced economies and emerging economies, respectively. For severalcountries, the index uses more than one available indicator on business expectations.2/ Consumer confidence consider the average from 2010, whereas business confidenceconsiders the average from 2013.Source: J.P. Morgan.

Emerging

World

Advanced

Q4 2019

Business confidence

Consumer confidenceJanuary

DecemberNovember

World Economy

World trade

Industrial production

United States Euro area Japan

Source: Consensus Forecast.


In this context, the growth outlook for the main advanced economies has been revised downwards.

Advanced Economies: GDP Growth Forecasts, %2019 Forecast (Jan 19) 2020 Forecast (Jan 20) 2019 Forecast (Dec 19)Observed Growth in 2018

❶ Global slowdown

3

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

2.9%Median2019 – Jan survey: 2.5%2019 – Dec survey: 2.3%2020 – Jan survey: 1.8%

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

1.9%Median2019 – Jan survey: 1.4%2019 – Dec survey: 1.2%2020 – Jan survey: 1.0%

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

Median2019 – Jan survey: 1.0%2019 – Dec survey: 0.9%2020 – Jan survey: 0.3%

0.8%


-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

20

20

Unemployment GapPercentage points

Real WagesAnnual % change, s. a.

Labor markets in advanced economies remain tight and wages have increased at a moderate pace.

Advanced Economies

January JanuaryDecember

September

United States

Euro area

Japan

United States

Euro area

Japan

December

Source: Prepared by Banco de México with data from CBO, OECD, Economic Outlook, November2019 and National Statistical Agencies.

s. a. / Seasonally adjusted figures.Source: BLS, BCE, Bloomberg, ONS and Haver Analytics.

❶ Global slowdown

-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

20

20

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

❷ Low inflation


-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

United States 1/

Euro areaJapan

DecemberJanuary

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

Headline Inflation

-2

-1

0

1

2

3

4

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

United States 2/

Euro area

Japan 3/

DecemberJanuary

Core Inflation

Advanced EconomiesAnnual % change

In the main advanced economies, inflation remains below their central banks’ targets.

2/ Refers to the Personal Consumption Expenditure Price Index thatexcludes food and energy (PCE).3/ Excludes energy and fresh food and the direct effect of theconsumption tax increase.Source: BEA, Eurostat and Japan’s Statistics Bureau.

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

Inflation Forecasts for 2020%

4/ Refers to expectations for the consumer price index (CPI).Source: Consensus Forecast. The latest survey was conducted in Jan 2020.

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

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

Median 2.0

United KingdomMedian 1.7

Median 0.6Median 1.3

Forecast Jan-20Forecast Jan-19

Observed in 2019Observed in 2018

United States4/

Canada

Japan



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


Euro area

-1

0

1

2

3

4

5

6

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

20

20

-1

0

1

2

3

4

5

6

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

20

20

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

20

15

20

16

20

17

20

18

20

19

20

20

20

21


Reference Rates and Implied Trajectoriesin OIS Curves 1/

%

1/ OIS: Fixed-for-floating swap where the fixed interest rate is the one-day effectivereference rate.2/ Data for the observed federal funds rate corresponds to the average between thelower and upper bounds of the target range (1.50% - 1.75%).Source: Bloomberg.

US Federal Reserve 2/

Bank of Japan

European Central Bank

February 12, 2020

December 31, 2018

Implied target rate in OIS curve End2019

End2020

United States

Euro area

Japan

February

10-year Government Bonds Interest Rates%

Source: Bloomberg.

United States

Euro area

Japan

February

2-year Government Bonds Interest Rates%

Weakness of economic activity together with inflation at levels below the central banks’ targets has beenreflected in more accommodative monetary policy stances in advanced economies and lower medium- andlong-term interest rates.

❸ Lower interest rates

Source: Bloomberg.

0%

5%

10%

15%

20%

25%

30%

> 5

.0%

4.0

- 5

.0%

3.0

- 4

.0%

2.0

- 3

.0%

1.5

- 2

.0%

1.0

- 1

.5%

0.5

- 1

.0%

0.0

- 0

.5%

< 0

.0%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


Government Bond Rate Curveand One-year Forward Curve

%

1/ Refers to Germany’s yield curve.Source: Bloomberg.

The moderation of several risks to the global economy together with monetary policy easing has beenreflected in an improvement of financial markets.

Government and Corporate Debtwith Investment Grade by Interest Rate

% of total outstanding debt

United StatesEurope

Japan

Other developed countries

❹ Easing of global financial conditions

United States

Euro area1/

Japan

Forward rates

3m 1Y 2Y 3Y 5Y 10Y 30Y

Note: Other developed countries include: the United Kingdom, Switzerland and Sweden. Dataupdated up to January 2020.Source: Amundi.

Reference curve

7

United States: Financial Conditions Index 2/

Units

2/ The financial conditions index is constructed based on the effect of the five variables oneconomic activity: the reference interest rate, the 10-year government note, the spread of thebond with investment grade on the government debt bond with equivalent maturity, the ratio ofa stock index with average earnings per share of 10 years and the trade weighted exchange rate.The countries that make up the global sample include the G10 countries and Brazil, Chile, China,the Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, the Philippines, Russia,South Africa, South Korea, Thailand and Turkey.Source: Banco de México with Bloomberg and Goldman Sachs data.

98

99

100

101

Jun

-16

Oct

-16

Feb

-17

Jun

-17

Oct

-17

Feb

-18

Jun

-18

Oct

-18

Feb

-19

Jun

-19

Oct

-19

Feb

-20

RelaxationFebruary


Asset Performance in 2019 and 2020%, basis points

Note: Interest rates correspond to interest rate swaps for 10-year maturity. In the case of Argentina, sovereign rates in US dollar for 9-year maturity are used since those are the most liquid and the ones that reflect moreadequately the performance of the fixed income market in that country.Source: Bloomberg.

Global financial conditions have increased risk appetite.

8

❺ Emerging markets

Region Country CurrenciesEquity

markets

Interest

rates 10YCDS Currencies

Equity

markets

Interest

rates 10YCDS

Mexico 3.82% 4.56% -204 -76 1.64% 4.13% -21 -2

Brazil -3.87% 31.58% -255 -108 -7.41% 0.12% -11 -2

Chile -7.74% -8.53% -114 -20 -4.85% -0.19% 14 5

Colombia -1.00% 25.38% -58 -85 -3.01% -0.10% -48 1

Russia 12.46% 29.14% -224 -98 -1.94% 2.35% -46 4

Turkey -11.12% 25.37% -394 -79 -1.55% 4.91% -98 -11

Hungary -5.17% 17.74% -68 -17 -5.55% -3.27% 9 -24

China -1.22% 22.30% -17 -36 -0.12% -4.04% -30 2

Malaysia 1.04% -6.02% -75 -75 -1.11% -2.88% -35 1

India -2.25% 14.38% -67 -47 0.04% 0.76% -18 -5

Thailand 8.61% 1.02% -84 -6 -3.19% -3.44% -37 4

Indonesia 3.78% 1.70% -90 -10 1.40% -5.92% -52 -7

Africa South Africa 2.48% 8.24% -51 -60 -5.74% 1.16% -22 7

North America United States 0.22% 28.88% 4 -8 2.69% 4.60% -24 2

Latin America

Emerging Europe

Asia

2019 2020

1

2

3

4

Índice

5


Economic outlook

Mexican economy

External conditions

Final remarks


Outline

9

Medium-term challenges

The Mexican economy has faced a sequence of adverse shocks since mid-2014, which contributedto a reduction in external sources of finance and increased uncertainty:

❶ Fall in crude oil prices – second half of 2014.

❷ Significant contraction of the oil production platform.

• The oil trade balance went from being in surplus to being in deficit.

❸ Uncertainty about the future of NAFTA.

❹ Monetary policy normalization in the U.S.

Necessary elements for an orderly adjustment.

❶ Real exchange rate depreciation.

❷ Monetary policy aimed at keeping a low and stable inflation.

❸ Incentives to internal savings.

❹ Fiscal discipline.


4.2 2.5 3.0 2.9 3.9 2.2 1.9

4.14.7 4.3 4.0 2.6

2.2 1.6

1.01.3

-1.5 0.0 -0.4

0.50.1

10.0 9.7

5.77.4 8.0

5.0 5.4

2013 2014 2015 2016 2017 2018 Q3 2019

5.7 5.6 4.6 5.5 6.64.2 5.1

4.2 4.1

1.11.9

1.4

0.9 0.3

10.0 9.7

5.77.4 8.0

5.0 5.4

2013 2014 2015 2016 2017 2018 Q3 2019-10

-5

0

5

10

15

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

Mar

-17

Sep

-17

Mar

-18

Sep

-18

Mar

-19

Sep

-19

11

The sources of financial resources of the economy continued to grow at a slow rate relative to previous years,reflecting a lower growth rate of external sources and a slight upturn of the domestic ones.

Total

Sources and Uses of Financial Resources of the Economy Annual flows as % of GDP

Note: Annual flows as a percentage of GDP in each reported quarter refer to the total sources and uses of financial resources in the last four quarters, expressed as a % of average nominal GDP of the same four quarters. Q3 2019 figures correspond to preliminary data. All figures are annual except for the Q3 2019. 1/ Corresponds to domestic financial assets (aggregate F1), composed of monetary and non-monetary domestic sources. 2/ Includes monetary instruments held by non-residents (i.e. the aggregate MNR, which is the difference between M4 and M3) and other non-monetary external sources (external debt of the Federal Government and public agencies and companies, commercial banks’ external liabilities, external financing to the nonfinancial private sector, and funds raised by agencies, among others). 3/ Refers to the loan portfolio of financial intermediaries, the National 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 of commercial 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. Includes non-monetary liabilities from the Institute for the Protection of Bank Savings (IPAB) as well as the effect of the valuation changes of public debt instruments, among other concepts. 6/ Refers to Public Sector Borrowing Requirements (RFSP, for its acronym in Spanish) of each fiscal year, which include Banco de México’s operational surplus turned in to the federal government. Source: Banco de México.

0

5

10

15

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

Mar

-17

Sep

-17

Mar

-18

Sep

-18

Mar

-19

Sep

-19

December

Domestic 7/

7/ Data adjusted due to the change in composition of the set of financial intermediaries considered in the credit statistics.Credit from commercial and development banks as well as other non-bank financial intermediaries, is included.Source: Banco de México.

Financing to the Non-financial Private SectorReal annual % change

Q3 2019Sources

Uses


Domestic1/

External2/

International reserves4/

Private sectorfinancing3/

Public sector financing6/

Total

TotalOther items 5/

Total

External

Domestic 7/

Firms

Housing

Consumption


-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

-5

-4

-3

-2

-1

0

1

2

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Trade BalanceUSD million

Current Account% of GDP

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

1/ The annual figure for 2019 corresponds to the January-September period.Source: Banco de México and INEGI.

Q4-2019

Non-oil

Oil

Total

Q3-2019

Annual data 1/

Current account

-1.5

-2.5

-1.9-2.6

-2.2

-1.7 -1.8

-0.2

12

In the last years the external accounts have reverted their medium-term trend, currently showing a surplus inthe non-oil trade balance and a deficit in the oil trade balance.

80

90

100

110

120

130

140

150

160

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Depreciation January

Bilateral Real Exchange RateBetween Mexico and United States

Index Jan-2014=100

Source: Bureau of Labor Statistics, Banco de México, and INEGI.



70

80

90

100

110

120

130

140

150

160

170

180

190

200

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

Bilateral Real Exchange RateBetween Mexico and United States

Index 1992=100

Headline Inflation and Nominal Depreciation RateAnnual % change

Note: Blue shadows show periods of high nominal depreciations.Source: Bureau of Labor Statistics, Banco de México and INEGI.

Note: Blue shadows show periods of high nominal depreciations.Source: Bureau of Labor Statistics, Banco de México and INEGI..

Inflación General

Despite the significant real exchange rate depreciation of the peso over the last years, the pass-through effectfrom the exchange rate to prices remains at low levels, thus reflecting a better functioning of the economy’snominal system. Monetary policy has focused on avoiding effects on the price formation process.

DepreciaciónCambiaria

13

1Q Enero

20

20

-50

0

50

100

150

200

250

300

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18


Depreciation

Inflation

Nominal exchange rate

Depreciation



80

100

120

140

160

180

200

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Depreciation

Chile

Colombia

Brazil

Mexico

South Africa

February

Nominal Exchange Rate against USD Index Jan-01-2014=100

Source: Bloomberg.

0

5

10

15

20

25

30

35

40

45

20

14

20

15

20

16

20

17

20

18

20

19

20

20

South Africa

Brazil

Chile

Mexico

Colombia

JanuaryDecember

Source: Haver Analytics.

Accumulated Headline Inflation Since 2014%


The Mexican economy has shown a greater weakness during the last quarters.0

.56

0.8

90

.63

0.8

40

.35

-0.6

90

.97

0.5

5 0.6

41

.27

0.3

81

.11

0.5

41

.04

1.2

3-0

.04

0.6

00

.44

1.1

41

.09

0.4

70

.34

-0.2

51

.07

1.3

4-0

.21

0.3

8-0

.08

-0.0

9-0

.06

0.0

1-0

.02

-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

Economic Activity IndicatorsIndex 2013=100, s. a.

s. a. / Seasonally adjusted figures. 1/ Refers to preliminary data published by INEGI.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013. 1/ Global Indicator of EconomicActivity (IGAE, for its acronym in Spanish). Source: Mexico’s National Accounts System (SCNM,for its acronym in Spanish), INEGI.


Q4-20191/

Total IGAE 1/

Agricultural and livestock products

IGAE 1/ (3.2%)

Industrial production(34.2%)

Services IGAE 1/

(62.7%)

NovemberDecember

90

95

100

105

110

115

120

125

130

135

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

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

2020 Macro Prospects 16

s. a. / Seasonally adjusted figures. Note: Figures in parentheses represent their share in 2013. 1/ Global Indicator of Economic Activity(IGAE, for its acronym in Spanish).Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

IGAE Services 1/

Index 2013=100, s. a.

Industrial ActivityIndex 2013=100, s. a.

60

70

80

90

100

110

120

130

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Mining (22.3%)

Manufactures (49.7%)

Construction (23.3%)

Utilities (4.7%)

December

Total

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their participation in 2013.Source: Monthly Indicator of Industrial Activity, Mexico’s NationalAccounts System (SCNM, for its acronym in Spanish), INEGI.

90

95

100

105

110

115

120

125

130

135

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

November

Professional,management ofcompanies and

enterprises (8.9%)

Accommodation and food services

(3.6%)

November

Public administration

(7.1%)

Arts, entertainment, andrecreation (3.8%)

Transportation andinformation (14.0%)

Finance and realestate (23.8%)

Retail trade (15.3%)

Educational andhealth care (9.9%)

Wholesale trade (13.5%)

25

35

45

55

65

1.5

2.0

2.5

3.0

3.5

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.

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

RemittancesBillion USD and

constant pesos, s. a.

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

Consumer Confidenceand Total Real Wage Bill

Response balance and annual % change, s. a.

-8

-6

-4

-2

0

2

4

6

8

10

25

30

35

40

45

50

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Q4-2019Real wage bill

Consumer confidence

January

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

85

90

95

100

105

110

115

120

125

130

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

November

Imported goods (10%)

Total

Domestic services (45%)

Domestic goods (45%)

US dollars

Mexican pesos1/

December

Private consumption remained weak due to the slowdown in consumption of services and goods (especiallyimported ones). Regarding consumption determinants, remittances and the real wage bill have trendedupwards.

17

75

83

91

99

107

115

123

131

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

As for gross fixed investment, the unfavorable performance shown by this indicator since H2 2015 andespecially since the beginning of 2018 continued, as a reflection of lower spending on machinery andequipment and weak construction.

80

88

96

104

112

120

128

136

20

12

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 Residential and Non-residential Construction

Index 2013=100, s. a.

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

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

s. a. / Seasonally adjusted figures by Banco de México, except for total series.Note: Figures in parentheses represent their share in 2018.Source: Prepared by Banco de México with data from ENEC, INEGI.


November

Machinery and equipment (38.6%)

Total

Non-residential(58%)

Residential(42%)

Real Value of Construction Output by Contracting Institutional Sector 1/

Index Jan-2016=100, s. a.

50

60

70

80

90

100

110

120

130

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Public (42.8%)

Private residential housing (18.7%)

Private (57.2%)

Private excl. residential housing (38.5%)

Total

Total

Construction (61.4%)

November November

18

0

2

4

6

8

10

12

14

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

Oct

-19

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

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

As to the labor market, it has exhibited a lesser degree of tightness and job creation has slowed down.


December

Labor Market Gap: Unemployment Rate 1/

Percentage points, s. a.

s. a. / Seasonally adjusted figures. 1/ Shadows represent confidence bands.The interval corresponds to two average standard deviations among allestimates. Source: Prepared by Banco de México with data from ENOE(INEGI).

Jobs Insured by IMSS: Permanent and Temporary in Urban Areas

Annual change in thousands

0

100

200

300

400

500

600

700

800

900

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Mill

aresJanuary

Source: IMSS.

Daily Nominal Wage Associated with IMSS-insured Workers

Annual % change

2/ Made up of municipalities listed in the DOF of December 26, 2018, mostof which are adjacent to the Northern border.Source: Calculated by Banco de México with data from IMSS.

December

Northern border 2/

National

Rest of the country

19

20

20

-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

Slack Indicators: Main Component by Indicators 4/

%

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

Monthly

s. a. / Seasonally adjusted data.1/ Output gap estimated with a tail-corrected Hodrick-Prescott filter; see “Inflation ReportApril – June 2009”, Banco de México, p. 74.2/ Output gap confidence interval calculated with a method of unobserved components.3/ Refers to preliminary data published by INEGI.Source: Prepared by Banco de México with data from INEGI and Banco de México.

4/ Indicators constructed using CCM methodology; see Banco de México (2018), “Quarterly Report, October-December 2017”, p.47. Monthly and quarterly slack indicators areconstructed with the main component of sets of series which includes 11 and 12 indicators, respectively. Slack indicators of consumption, economic activity, aggregate demand, labormarket and demand conditions in the lending market are based on the first main component of sets of series which includes 6, 4, 3 and 6 indicators, respectively.Source: Prepared by Banco de México with data from INEGI and Banco de México.


IGAE

GDP

95% confidence interval 2/

Q4-2019 3/

November

Output Gap Estimate 1/

% of potential output, s. a.

Slack conditions appear to have negatively expanded at a faster rate than expected.

Quarterly

-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

Quarterly indicator

Economic activity indicator Monthly indicator

Consumption

Demand conditions in the lending market

Labor market

NovemberQ3 2019

21

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

20

20

Analysts

0

10

20

30

40

50

60

70

80

90

100

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

An

alys

tsB

usi

ne

ssre

pre

sen

tati

ves

Business Representatives and Analysts

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) associatedwith 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. 3/ It refers tofactors such as: public insecurity problems, domestic political uncertainty, corruption, impunity and lack of rule of law. 4/ / It refers to factors such as: uncertainty over the domestic economic situation, domestic market weakness, households’ level of indebtedness, firms’ level ofindebtedness, absence of structural change in Mexico, availability of domestic financing in Mexico, oil production platform and lack of market competition.

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 conditionsGovernance 3/

Domestic economic conditions 4/ OtherMonetary policy

Among the factors that business representatives and analysts believe could limit growth those related togovernance stand out. Progress in addressing certain problems that have affected the economy for years,such as the rule of law (corruption, insecurity and impunity), would foster an environment that would allowfor incentivizing growth.


Jan.16 Jul.16 Feb.17 Jan.19 Jul.19 Aug.19 Dec.19Sep.19 Nov. 19Oct.19

1

2

3

4

Índice

5


Economic outlook

Mexican economy

External conditions

Final remarks


Outline

22

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

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

20

20

Consumer Price IndexAnnual % change

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.

Headline

Core

January

Variability interval 1/


Non-core

Headline inflation has shown a downward trend from 6.77% in Dec 2017 to 4.83% in Dec 2018 and 3.24%in January 2020. This behavior can be attributed mainly to the significant decline of non-core annualinflation from 12.62% to 8.40% and 1.81% during the same periods.

3.243.73

1.81

23

-2

1

4

6

9

12

15

20

16

20

17

20

18

20

19

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

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

Oct

-19

Jan

-20

Non-core Price Subindex ComponentsAnnual incidences in percentage points 1/

Agricultural and Livestock Products Annual % change

Energy Products and Government-authorized PricesAnnual % change

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

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

January

Non-core Price Subindex

Agricultural and livestock products

Fruits and vegetables

Livestockproducts

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

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

Oct

-19

Jan

-20

January

Energy products and government-authorized prices

Energyproducts

Government-authorized

prices

Non-core

Government-authorized pricesAgricultural and

livestock products

Electricity

Domestic gas

Gasoline

January


The reduction of non-core inflation is due to the lower annual variations that have been registered in energyprices, although livestock prices have also decreased.

24

20

20

1

2

3

4

5

6

7

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

0

1

2

3

4

5

6

7

8

9

10

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Annual core inflation continues to show persistence.

Core Inflation Trend Measures Merchandise

1/ The trimmed mean indicator excludes the contribution of extreme variations inthe prices of certain 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.

January

January

Core inflation

Supercore pricesubindex

Trimmed meanIndicator 1/ Merchandise

Foods, beveragesand tobacco

Non-foodmerchandise

-1

0

1

2

3

4

5

6

7

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Services

Housing

Education

Source: Banco de México and INEGI.

Services

January


Services other than housing and education

25

Core Price SubindexAnnual % change

2

3

4

5

6

7

8

9

10

Dec

-15

Jul-

16

Feb

-17

Sep

-17

Ap

r-1

8

No

v-1

8

Jun

-19

Jan

-20

Monetary Policy Conduction

Press releases highlighted:

Lower levels of headline inflation.

A greater slack in the economy.

The recent behavior of external and domesticyield curves.

August, September, November, December and February meetings

25bp reductions in each one to a level of 7.0%

Source: Proveedor Integral de Precios (PiP).

Overnight Interbank Interest Rateand Government Bond Yields

%

1 day

10 years

3 years

February


30 years

Boxplot Diagram: Performance of Financial Assets in Mexico 2018, 2019 and 2020


Note: the median of the data set is the horizontal line cutting the box. The first quartile is in the lower bound of the box and the third quartile is in the upper bound of the box. The interquartile range, which corresponds to the difference between the third and the first quartile iscalculated determining the height of the box. To establish the bottom whisker of the diagram, the point is determined by the first quartile minus 1.5 times the interquartile range. Observations below this point are considered outliers. The bottom whisker is drawn from the lowerbound of the box to the lowest possible observation that does not go beyond the point determined by the first quartile minus 1.5 times the interquartile range. To determine the upper whisker of the box, the point is determined by the third quartile plus 1.5 times theinterquartile range. Data larger than this value are considered outliers. The upper whisker is drawn from the upper bound of the box to the highest observation that does not go beyond the third quartile plus 1.5 times the interquartile range. Outliers are displayed as black dots.Source: Bloomberg, Banco de México, Proveedor Integral de Precios (PiP), and the U.S. Treasury Department.

Financial markets in Mexico have performed better as a consequence of more favorable conditions ininternational markets as well as the reduction of some domestic risks such as the USMCA approval.

Last observation of each year

US-Mexico Interest Rate SpreadPercentage points

5-year Mexico CDSBasis points

10-year Interest Rate

%

Exchange Rate Pesos per US dollar

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Dec

-09

Oct

-10

Au

g-1

1

Jun

-12

Ap

r-1

3

Feb

-14

Dec

-14

Oct

-15

Au

g-1

6

Jun

-17

Ap

r-1

8

Feb

-19

Dec

-19

Referenced to Nominal Rate (Bonds) Referenced to Real Rate (Udibonos)

Note: Historical average calculated with data since November 2009.Source: Banco de México with PIP data.

Note: Historical average calculated with data since November 2009.Source: Banco de México with PIP data.


Interest rates in Mexico have decreased reflecting the reduction in external interest rates and Banco deMéxico’s monetary policy actions.

Interest Rates on Government Securities%

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Dec

-09

Oct

-10

Au

g-1

1

Jun

-12

Ap

r-1

3

Feb

-14

Dec

-14

Oct

-15

Au

g-1

6

Jun

-17

Ap

r-1

8

Feb

-19

Dec

-19

Average

3 years

10 years

30 years

3 years

10 years

30 years

Average

28

February February

Total Yield 1 Year for Exchange Rate (Domestic Currency)

Density

Total Yield 1 Year for Long-term Rates (Domestic Currency) 1/

Density

Total Yield 1 Year in USDDensity

Note: The Breeden-Litzenberger methodology is used in the implicit distributions to obtain the distribution of the foreign exchange market and the Ho-Lee model to obtain the distribution in the fixed income market. Epanechnikov kernels are also used toobtain the density function. 1/ A basket of government bonds with a 1-10 year maturity is used. *Volatility corresponds to the standard deviation of future yields over a 1-year horizon. **Efficiency is measured as the expected value of the wealth utilityassociated with each support element. The utility function used is the natural logarithm of wealth and the result is multiplied by 100 to facilitate comparison between the different assets.Source: Banco de México with Bloomberg data.


Implicit Distributions in Market Prices of Annual Returns of Fixed Income Instruments (1 - 10 year maturities) of Selected Countries as of February 07, 2020

29

-40% -30% -20% -10% 0% 10% 20% 30%

BrazilColombiaPeruChileSouth AfricaChinaIndiaMexico

-20% -10% 0% 10% 20% 30%


-40% -20% 0% 20% 40%


Mean Volatility* Efficiency**

Chile -0.5% 8.7% 21.1%

China -1.1% 4.2% 12.6%

Colombia -1.7% 8.2% 20.5%

Peru -2.0% 4.6% 15.5%

Brazil -2.5% 8.5% 21.9%

India -3.0% 4.7% 14.7%

South Africa -4.2% 11.4% 29.7%

Mexico -4.4% 6.1% 19.4%


Mexico 7.0% 3.6% 6.7%

South Africa 6.4% 6.6% 6.0%

India 5.5% 2.7% 5.3%

Brazil 4.2% 6.7% 3.9%

Colombia 3.3% 8.9% 2.9%

China 2.2% 3.3% 2.1%

Peru 1.9% 4.2% 1.8%

Chile 1.9% 2.9% 1.8%


Mexico 2.3% 6.8% 2.1%

India 2.2% 4.6% 2.1%

South Africa 1.9% 14.4% 0.8%

Brazil 1.5% 9.6% 1.1%

Colombia 1.2% 11.1% 0.6%

Chile 1.2% 8.7% 0.8%

China 1.0% 4.2% 0.9%

Peru -0.2% 5.8% -0.4%

1

2

3

4

Índice

5


Economic outlook

Mexican economy

External conditions

Final remarks

30

Outline



Growth and Inflation Forecasts

GDPGrowth

2019: -0.2 a 0.2%2020: 0.8 – 1.8%2021: 1.3 – 2.3%

• Based on most recent data, GDP in 2020 is foreseen to grow lessthan estimated in the Quarterly Report July-September 2019, with abalance of risks biased to the downside.

Monetary Policy StatementFebruary 13, 2020

Quarterly ReportJuly-September 2019

Headline Inflation

• In light of the recent behavior of the factors affecting the foreseenpath of inflation, headline and core inflation are expected to bemoderately above the forecasts published in the last QuarterlyReport.

Risks to the foreseen trajectory for inflation:1) Core inflation’s resistance to decline; 2) Wage increasesaffecting the labor market and prices; 3) A possible exchange rateadjustment due to external or domestic factors; 4) Increases inagricultural and livestock prices greater than expected; 5) Adeterioration of public finances.

1) A further appreciation of the peso exchange rate; 2) Lowerinternational prices of energy goods due to the coronavirusoutbreak; 3) A greater economic slack.

Q2 Q3 Q4* Q1 Q2 Q3 Q4 Q1 Q2 Q3

4.2 3.3 3.0 3.5 3.1 3.1 3.0 2.8 2.9 2.9

2019 2020 2021

Core Inflation

Q2 Q3 Q4* Q1 Q2 Q3 Q4 Q1 Q2 Q3

3.8 3.8 3.6 3.6 3.2 3.1 2.9 2.8 2.9 2.9

20212019 2020

Note: Inflation figures refer to the quarterly average of annual inflation.*/ Forecast since November 2019.Source: Banco de México and INEGI.

1

2

3

4

Índice

5


Economic outlook

Mexican economy

External conditions

Final remarks


Outline

The global economy has slowed.

World financial conditions have loosened.

Several risks for the outlook of the global economy persist. While trade tensions havediminished, other ones have increased recently, such as the geopolitical ones and thepotential effects of the recent coronavirus outbreak.

Economic activity in Mexico is expected to start recovering in the first quarter of 2020.

Recent progress in the USMCA approval reduces an important factor of uncertainty that hasaffected investment and growth.

Efforts must continue to advance in those factors that contribute to increase confidenceneeded to foster investment and growth.

Final Remarks


❶

❷

❸

❹

❺

❻

2020 Macro Prospects - banxico.org.mx

Documents

Transcript of 2020 Macro Prospects - banxico.org.mx