1 / 28

Mexico Economic and Political Outlook

Mexico Economic and Political Outlook. Banorte Investor Day. November 16, 2007. Agenda. Recent Economic Performance Medium-Term Growth Drivers and Challenges Weathering the US Slowdown Political Outlook. Recent Economic Performance. Recent Economic Performance. Election. Election. New

jorryn
Download Presentation

Mexico Economic and Political Outlook

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Mexico Economic and Political Outlook Banorte Investor Day November 16, 2007

  2. Agenda Recent Economic Performance Medium-Term Growth Drivers and Challenges Weathering the US Slowdown Political Outlook

  3. Recent Economic Performance

  4. Recent Economic Performance Election Election New Administration New Administration Government spending has been a drag on growth on post-election years… Quarterly Government Spending (YoY % chg)

  5. Recent Economic Performance Quarterly Private Consumption (YoY % chg) …other components of aggregate demand, are supporting growth… Formal Private Sector New Job Creation (000s) …anchored on strong new job creation and consumer credit…

  6. Recent Economic Performance Investment is also showing signs of an uptick driven by FDI… Foreign Direct Investment Flows (US$bn)

  7. Recent Economic Performance Target = 3% Resilient food inflation means Banxico unlikely to cut rates… YoY Inflation

  8. Banorte Macro Outlook Base Case Scenario 2006 Variables 2007E 2008E 4.8% Mexico GDP 3.0% 3.3% 4.1% Inflation 3.8% 3.7% 7.00% Fondeo Rate 7.50% 7.50% 2.9% USA GDP 2.0% 2.1% 5.25% Fed Funds 4.50% 4.50%

  9. Medium-Term Growth Drivers and Challenges

  10. What will drive growth? The demographic bonus… Population Pyramid Population between 29 and 49 years-old 22% • Population 107 million, 11th on the global population scale • 2/3 of the population is under 35, 45% of the population is under 19 • Median age to increase from 25 to only 31 by 2020 • Labor supply will increase by 1 million on average Source: INEGI

  11. What will drive growth? Infrastructure Investment as a % of GDP Source: Programa Nacional de Infraestructura 2007-12

  12. What will drive growth? Domestic Savings Afores AUM (% of GDP) (US$bn) Source: CONSAR

  13. What will drive growth? Most attractive economies for the location of FDI, 2007–2009 (Total number of responses UNCTAD Survey) • 2006 Global FDI flow US$1.3tr, approaching peak of US$1.4tr in 2000 • 70% of surveyed companies expect to increase FDI • 32% expect this increase to exceed 30% • Only 9% of companies anticipate a decrease in their investment flows.

  14. What will drive growth? Bank Credit to the Private Sector as a % of GDP 36% 28% Corporate / Commercial 13.2% 26.5% 13% 6% 8.4% 5.5% Consumer 2.7% 4.5% 4.2% 0.7% 6.2% Mortgage 6.7% 3.0% 0.9% 2012E 1994 2000 2006 Source: Asociación de Bancos de México

  15. Growth Challenges WEF Competitiveness Index 2006-07 Source: Banxico, WEF

  16. Growth Challenges Sub-par Infrastructure Caps Competitiveness Competitiveness Index Infrastructure Index Source: Banxico, WEF

  17. Growth Challenges Labor Rigidity Caps Competitiveness Rigidity Index Layoffs Rigidity Index New Employment Contracts Source: Banxico, Botero et al. (2004).

  18. Growth Challenges Development of Human Capital Low Education Levels Cap Productivity Quality of spending Matters Education Spending as a % of GDP 1960-2000 Average Years of Education 1960-2000 Average Test Scores Average GDP per capita 1960-2000 Source: Banxico, OCDE

  19. Weathering the US Slowdown

  20. Weathering the US Slowdown The link between Mexico and the US is undeniable… YoY Quarterly GDP Growth … but Mexico is less vulnerable to the current US slowdown than past episodes

  21. Weathering the US Slowdown 1. The Nature of this US Slowdown

  22. Weathering the US Slowdown 2. Weaker Manufacturing Links with the US US Manufacturing Output (YoY Growth) Maquiladora Industry (# of Firms and Employment Index) Source: Credit Suisse

  23. Weathering the US Slowdown 3. Financial System Evolution Mexico GDP (YoY Growth) Credit to the Private Sector (YoY Growth) Source: Credit Suisse and Banxico

  24. Political Outlook

  25. Political Outlook • Further Reforms are very possible • President Calderon has a reformist agenda and has proven he can negotiate with Congress • President Calderon has bargaining chips and is willing to use them • PRI has leaned towards cooperation vs. state of shock in 2000 • Some form of Energy Reform posible in next 12-18 months • Backdrop of US slowdown and declining Pemex volumes increase the sense of urgency, despite high oil prices. • Labor reform is not out of the question • Labor Unions are being pressured to be more transparent • Recent labor dispute resolutions have been less favorable to unions

  26. Conclusions

  27. Conclusions • 2007 Mexico slowdown aggravated by government spending drag • Growth in 2008 more likely to accelerate than decelerate • Medium-term growth outlook is solid albeit not spectacular • Low downside risk to growth, attractive upside potential • Growth opportunities are clear but important challenges remain • Learning to legislate in a democratic environment • Further reforms are probable and necessary • Mexico’s demise due to current US slowdown has been exaggerated

  28. Mexico Economic and Political Outlook Banorte Investor Day November 16, 2007

More Related