Discover Mathura And Vrindavan A Spritual Journey.pdf
Gabriel Lozano | The Mexican Economy | Global Cities Initiative
1. GLOBAL CITIES INITIATIVE: THE MEXICAN ECONOMY
Gabriel Lozano, Ph.D. Chief Mexico Economist
(52-55) 5540-9558
gabriel.lozano@jpmorgan.com
November, 2013
STRICTLY PRIVATE AND CONFIDENTIAL
J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero
2. Agenda
Introduction: The Mexican Economy
1
Past, present and future of the Mexican Economy
3
Where are we now?
GLOBAL CITIES INITIATIVE: THE MEXICAN ECONOMY
Economic and social trends
9
Where are we going?
16
1
3. Past, present and future of the Mexican economy
Where do we come from?
By the same token, Mexico entered the NAFTA in 1994, one of the biggest structural changes in the
past twenty years.
Mexico has experienced a significant transformation since the mid 1990s, when it suffered the Tequila
Crisis on the back of an ill-conceived financial liberalization.
Since then, Mexico has advanced gradually in the process of institutional changes, transparency and
accountability.
Where are we now?
Mexico is a medium-sized free-market economy, committed to rely in the market forces to gain
credibility and to provide certainty to investors.
INTRODUCTION: THE MEXICAN ECONOMY
While still in the early phase of a democratic process, there seems to be enough political willingness to
push the multi-partisan agreement known as “Pact for Mexico”.
Where are we going?
Mexico is facing many challenges, but the sound macroeconomic framework, and the democratic
process that started in the late 1990s should pave the way for the achievement of structural reforms.
If Mexico continues with the implementation of the structural reforms, potential output could jump
towards 4.5% in the medium term.
2
4. Agenda
Introduction: The Mexican Economy
1
Economic and social trends
3
Where are we now?
9
GLOBAL CITIES INITIATIVE: THE MEXICAN ECONOMY
Where are we going?
16
3
5. The Mexican Economy: A quick look into a US$ 1 trillion economy
GDP breakdown – demand side
Inventories
3%
GDP breakdown – supply side
Financial
services
-2%
Net exports
-1%
Taxes
3%
GFI-private
14%
Agriculture
3%
IP exmanufacturing
17%
GFI-public
6%
Private
consumption
64%
Public
consumption
12%
Services
58%
Non-transport
manufacturing
14%
ECONOMIC AND SOCIAL TRENDS
Transport
equipment
3%
Source: J.P.Morgan with data from INEGI
Source: J.P.Morgan with data from INEGI
4
6. Economic activity in perspective
Economic activity in the last twenty years
Mexico has been stuck in low gear in the last two cycles
% 3m/3msaar
Index (100= Trough); t = first year of expansion
25
130
1995-99
2003-07
2009-13
125
15
120
5
115
110
-5
105
100
ECONOMIC AND SOCIAL TRENDS
-15
95
-25
1994
Source: INEGI.
90
1997
2000
2003
2006
2009
2012
t
t+1
Source: INEGI and J.P. Morgan.
5
t+2
t+3
t+4
7. Mexico has approximately 116 million people, making it the country with the 11thlargest population in the world; almost 80% live in urban areas
Population in Latin America
Urban population in Mexico
Million
% of total
100%
250
90%
2013 (rate of
growth: 1.1%)
200
2030
80%
70%
150
60%
100
50%
40%
50
Source: INEGI and CELADE.
6
2010
2005
200
1990
1970
1960
1950
1930
Source: INEGI.
1940
20%
Venezuela
Perú
México
Guatemala
Ecuador
Colombia
Chile
Brazil
Argentina
ECONOMIC AND SOCIAL TRENDS
30%
8. While Mexico has become a major emerging market, pending tasks remain
in place
Inequality in Mexico remains very high
Income distribution per deciles
Gini index
% of total
70
40%
60
30%
Latin America
50
World
40
20%
30
20
10%
0
Source: INEGI.
7
X
IX
VIII
VII
VI
V
IV
III
I
Source: CIA World Factbook.
II
0%
Colombia
Paraguay
Chile
Brazil
Mexico
China
Peru
Argentina
Uruguay
USA
Russia
Turkey
Venezuela
Japan
India
UK
France
Canada
Spain
Italy
Australia
Germany
ECONOMIC AND SOCIAL TRENDS
10
9. Consumption remains the main contributor to growth, but GDP per capita needs to
improve further
Private consumption in Mexico
GDP per capita: Selected economies
% of GDP
USD, PPP
71.0
60,000
70.0
69.0
45,000
68.0
67.0
30,000
66.0
65.0
15,000
64.0
63.0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: INEGI.
8
India
Indonesia
Peru
China
Colombia
Brazil
Mexico
Panama
Uruguay
Chile
Greece
Spain
Japan
Canada
Source: CIA World Factbook.
Venezuela
60.0
United Kingdom
United States
ECONOMIC AND SOCIAL TRENDS
61.0
Switzerland
0
62.0
10. Agenda
1
Economic and social trends
3
Where are we now?
9
Where are we going?
GLOBAL CITIES INITIATIVE: THE MEXICAN ECONOMY
Introduction: The Mexican Economy
16
9
11. After years of low but steady growth, the Great Recession took its toll on the
domestic economy
Consumer confidence, credit, retail sales and formal employment
%oya, real terms (both axes)
Consumer confidence
Consumer credit
Employment (RHS)
Retail sales (RHS) *
60.0
12
50.0
10
40.0
8
30.0
6
20.0
4
10.0
2
0.0
0
-2
-20.0
-4
-30.0
WHERE ARE WE NOW?
-10.0
-6
2004
2005
2006
2007
2008
2009
Source: J.P.Morgan with data from IMSS, INEGI and Banco de México. *Retail sales: 3mma
10
2010
2011
2012
2013
12. However, it managed to recover swiftly on the back of a competitive manufacturing
sector
Wages in the manufacturing sector
Peso weakness vis a vis other emerging market currencies
US$
Index 2001=100
Mexico
China
2.5
150
2.3
140
2.1
México
Depreciation
130
India
1.9
120
1.7
Russia
110
1.5
237%
1.3
100
1.1
90
0.9
Brazil
80
0.7
Appreciation
70
China
0.5
WHERE ARE WE NOW?
02
03
04
05
06
07
08
09
10
11
12
60
01
Source: Ministry of Finance. *Estimates for China.
03
05
07
09
Source: J.P. Morgan and Bloomberg. Data as of November 8, 2013.
11
11
13
13. The manufacturing sector gained relevance with NAFTA, the destination of more than
80% of the exports
Main exports from Mexico
Main export destinations
Category
Electric machinery and other industrial
machinery
US$ mn
% of Total
140,577
37.9%
Transport equipments, road vehicles
66,023
17.8%
South America
5%
Mining
54,154
14.6%
Europe
6%
Iron, steel and manufactures of those metals
17,062
4.6%
Others
94,435
25.5%
Total exports
372,251
100%
Central
America
2%
Asia
Other
4.5%
1%
Canada
3%
WHERE ARE WE NOW?
United States
79%
Source: Banco de Mexico.
Source: Banco de Mexico.
12
14. Imports however are somewhat less concentrated, with a heavy reliance on Asia and
the NAFTA area
Main imports to Mexico
Main import countries
US$ mn
% Total
144,593
39.0%
Chemicals and related products
28,919
7.8%
Transport equipments, road vehicles
31,143
8.4%
Iron, steel and manufactures of those metals
30,772
8.3%
Others
135,109
36.4%
Total imports
WHERE ARE WE NOW?
Category
Electric machinery and other industries
machinery
370,537
100%
Other
1%
Canada
South America 2.7%
3%
Central
America
1%
Europe
11%
US
50%
Asia
31%
Source: Banco de Mexico.
Source: J.P. Morgan and Bloomberg. Data as of October, 2013.
13
15. Foreign direct investment has relied heavily on manufacturing for the last 20 years
Evolution of FDI to Mexico
FDI breakdown by sector
US$ billion
35
Energy
Mining &
1%
construction
7%
30
Financial
services
19%
25
Manufacturing
45%
20
15
10
Other
28%
5
0
WHERE ARE WE NOW?
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: Banco de Mexico.
Source: Ministry of the Economy.
14
16. While Mexico has become more competitive, it cannot rely only on a weaker
currency and wage-convergence with its competitors
Labor productivity in Mexico vis a vis other OECD countries
Year-to-date trade balance: Back to reality
GDP per hour worked as % of USA
Index USA = 100
US$ billion
160
4
140
2
120
100
0
80
-2
60
40
-4
1998-08
2011
20
2010
2012
-6
Jan
Apr
Jul
Oct
WHERE ARE WE NOW?
Source: Banxico.
Source: OECD.
15
Norway
USA
Germany
Sweden
Spain
Canada
Japan
OECD average
-10
Korea
2013
Russia
-8
Chile
Mexico
0
17. Agenda
Introduction: The Mexican Economy
1
Economic and social trends
3
Where are we now?
9
GLOBAL CITIES INITIATIVE: THE MEXICAN ECONOMY
Where are we going?
16
Strong macro framework but reforms are needed
16
18. The Pact for Mexico and democracy in Mexico: A new opportunity for fresh accords
Lower chamber of Congress
In December of 2012, the new government signed a
multi-partisan agreement that encompassed 95 accords
focused at improving competitiveness and productivity in
Mexico.
Nueva Alianza
2%
PRD-PT-MC
27%
PRI-PVEM
48%
This “Pact for Mexico” aimed at pushing core structural
reforms in 2013:
Education Reform
Telecommunication Reform
Fiscal Reform
Energy Reform
PAN
23%
Source: IFE.
Upper chamber of Congress
The Labor Reform was approved in the previous
administration.
PRD-PT-MC
22%
WHERE ARE WE GOING?
The new government has made it clear that the main
objective of the structural reforms is to extend productivity
and improve competitiveness throughout the country.
PRI-PVEM
47%
PAN
30%
Source: IFE.
17
Nueva Alianza
1%
19. Structural Reforms: Impact on potential growth
While the government expects potential output to jump
Impact on growth
towards 5.3% by the end of the current presidential
term (2018), we believe the impact will be more
gradual.
Bill
Impact on GDP
Financial reform
We estimate current potential output between 3.0% and
3.5%, and expect the most significant impact coming
from the energy reform.
0.1% - 0.3%
0.2% - 0.4%
0.4% - 0.7%
Total impact
Telecom reform
Potential output should reach 4.5% by the end of
the “sexenio”.
0.1% - 0.3%
Energy reform
Labor reform
0.8% - 1.7%
Potential Output
3.30%
with reforms
4.1% - 5.0%
Source: J.P. Morgan forecasts.
Contribution to potential growth
The benefits from the implementation of reforms will be
larger in the long-term due to the positive externalities
and the regional spillovers:
Reduced costs for both producers and
consumers
4.5%
Current
Potential
Output
Infrastructure gains
WHERE ARE WE GOING?
Expected
Positive and long-term growth in total factor
productivity
3.3%
Labor
Source: J.P. Morgan forecasts.
18
Telecomm
Financial
Energy
20. Appendix: Political calendar and chamber composition
Key political events and congress deadlines to monitor
Event
Congress composition: votes for constitutional reforms
Date
Income Bill (deadline for approval by Upper House)
1
28
7
15
5
16
1
500
128
334
86
PAN & PRI & PVEM
355
99
71%
77%
October 31, 2013
Expenditure Bill (deadline for approval by Lower House)
November 15, 2013
End of first ordinary session (2nd legislature)
December 15, 2013
Source: IFE, J.P. Morgan.
WHERE ARE WE GOING?
10
MC
October 20, 2013
54
Constitutional Reform
Income Bill (deadline for approval by Lower House)
213
PVEM
September 8, 2013
38
Total
Budget 2014 (deadline)
114
PANAL
September 1, 2013
22
PT
Ordinary Session (kick- off of 2nd legislature)
104
PAN
July - August
Upper
PRD
July 7, 2013
Extraordinary Sessions
Lower
PRI
Local Elections (14 States)
Source: IFE, J.P. Morgan.
19
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WHERE ARE WE GOING?
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20