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Mexico: Monthly Key Charts Summary (September 2015)

Core Content Overview

This report provides an analysis of key economic indicators and trends in Mexico for September 2015, with a focus on growth, inflation, foreign investment, and fiscal policy. It is produced by BNP Paribas and includes data from various sources such as Macrobond, Banxico, Inegi, and the Federal Reserve.

Main Economic Trends

1. Weaker US Demand Affecting Mexico's Growth

• Manufacturing exports growth has slowed, reflecting weaker demand from the US.
• Oil exports have declined significantly, impacting overall economic performance.
• US manufacturing weakness is expected to lead to weaker growth in Mexico.

2. Private Consumption on the Rise

• Private consumption is strengthening, driven by improving labor market conditions.
• This suggests a more resilient domestic demand component despite external headwinds.

3. Inflation at Record Lows, Expected to Rise

• Inflation is currently at record lows.
• A gradual increase in inflation is expected in Q4 2015, with some FX pass-through to inflation likely to occur.
• This is due to lower international prices dampening the inflationary impact of currency depreciation.

4. Foreign Investment in Local Debt

• Foreign ownership of government debt has increased, though at a slower pace.
• Cetes holdings have decreased, while Mbonos positions have risen.
• Total foreign holdings stood at MXN 2,138.7 billion as of 9/17/2015, showing a -1% week/week change.

5. Weaker MXN Loosening Financial and Monetary Conditions

• A weaker Mexican peso (MXN) has loosened financial and monetary conditions (FMCI) in Mexico.
• This gives Banxico room to tighten monetary policy even in the face of weak growth.

6. Monetary Conditions and Rate Differentials

• Relative monetary conditions vs the US are a key driver for Banxico’s interest rate decisions.
• The rate differential is narrowing, indicating a potential for rate hikes in the near future.

Fiscal Policy and Budget Outlook

1. 2016 Budget Projections

• The 2016 budget assumes:
  • Tax revenue will increase by 19.3% in real terms.
  • Total fiscal revenue will fall by 0.8 percentage points to 21.5% of GDP due to lower oil revenue.
  • Oil revenue will decline to 4.5% of GDP from 6.6% in 2015.
  • Public spending will decrease by 1.3% of GDP.
  • Public investment will fall by nearly 21%.

2. Fiscal Accounts Overview

• Revenue:
  • Non-petroleum revenue has increased from 15.2% of GDP in 2013 to 22.3% of GDP in 2015.
  • Petroleum revenue has decreased from 16.1% of GDP in 2014 to 15.6% of GDP in 2015.
• Net expenditures:
  • Discretionary expenditures have increased from 20.6% of GDP in 2013 to 24.5% of GDP in 2015.
  • Non-discretionary expenditures have increased from 20.9% of GDP in 2014 to 20.1% of GDP in 2015.
• Primary balance:
  • The primary balance gap indicates that Mexico's primary balance is below the level required to stabilize the debt-to-GDP ratio.
  • Mexico's debt-to-GDP ratio has more than doubled, highlighting the rapid rise in public debt.

Key Takeaways

• External demand weakness, particularly from the US, is adversely affecting Mexico's growth.
• Private consumption is strengthening, offering a counterbalance to export declines.
• Inflation is expected to rise gradually in Q4 due to FX pass-through effects.
• Foreign investors are reducing Cetes holdings but increasing Mbonos investments.
• Monetary policy flexibility is increasing due to weaker MXN and looser FMCI.
• The 2016 budget is optimistic in its tax revenue projections, which may not materialize as expected.
• Public debt is rising rapidly, with the debt-to-GDP ratio more than doubling over recent years.

Disclaimer

• The information is based on public sources and not guaranteed to be accurate or up to date.
• This report is not an offer to buy or sell securities and should not be relied upon as authoritative.
• BNP Paribas may have financial interests in entities mentioned.
• The report is subject to legal restrictions in various jurisdictions, including professional client limitations in the European Economic Area and specific distribution rules in Japan, South Korea, Taiwan, Israel, Singapore, Australia, and Brazil.

Sources

• Macrobond
• Banxico
• Inegi
• Federal Reserve
• SHCP
• BNP Paribas

This summary highlights the economic and fiscal challenges facing Mexico in September 2015, with a focus on external demand, inflation, foreign investment, and public debt. It serves as a key reference for understanding the macroeconomic landscape and policy implications.