Mexico & Nafta - February 2013 (ISSN 1741-444X)

Real annualised GDP growth was 4.0% in 2012, following a result of 3.6%  in the fourth quarter, according to the latest (30 January) report from the finance ministry (SHCP).

On the strength of this both the central bank (Banxico) and local private analysts nudged up their 2013 forecasts. Banxico now expects annual growth of 4.03% and inflation of 3.66%, with underlying inflation of 2%-4% and a stable exchange rate of about  M$12.69/US$.  Banco Ivex is more cautious, predicting a GDP result of 3.4%, with inflation of 3.66%. It forecasts a year-end exchange rate of M$12.40/US$. Rodolfo Campuzano, an economist at the bank, said in a late January press conference that “the only work the government has to do is to deliver what has been promised; otherwise the markets will feel deceived, undermining investor confidence”.

On 22 January the central bank governor, Agustín Carstens, said that in his opinion, it was still “not opportune” to cut Banxico’s benchmark interest rates, despite the fact that the economy was showing “some deflationary tendencies”. Carstens gave an interview after Banxico held interest rates steady at 4.50% for another month.

Rates have now been steady since June 2009.  He explained that while the bank had observed an “important fall” in the rate of inflation since September, which has taken the underlying rate under the 3% target set by Banxico, and there are still signs of “weakness in the domestic and international economy”, in his opinion it is still not the “right time” to apply a cut. He said that he was in favour of the deflationary scenario “consolidating itself before taking that step”. End-year inflation was 3.57% in 2012, down from 4.8% in September. The peso was trading steady at M$12.67/US$ on 7 February.

Unemployment falls

According to the latest Inegi figures, unemployment in the economically active population fell to 4.47% in December 2012, compared with 4.51% the previous month. While unemployment figures tend to fall slightly during the Christmas period (due to seasonal employment gains), the seasonally-adjusted unemployment figure ,which takes into account such fluctuations, stood at 4.96%, 0.15 percentage points lower than in November, suggesting that permanent jobs had been created in the period.

Inegi also reported that the rate of underemployment in December was 7.6%, down from 8.2% in December 2011. Underemployment is considered an important indicator in Mexico, given that the Inegi employment figures are very broad, including anyone that has worked six hours a week in the past month.

• Supporting MSME’s

President Peña Nieto in January inked a decree to create a national institute of entrepreneurship (Instituto Nacional del Emprendedor) in support of micro, small, and medium enterprises (MSME), which he called “the heart of economic activity” in Mexico. He said that they supplied 70% of jobs in Mexico and contributed more than one-third of GDP. Peña Nieto, who first announced the decree on 7 December at a meeting with business leaders at the Los Pinos presidential palace, said that there was a need for “an ecosystem that contributes to the development of new entrepreneurs”, and promotes and protects them. Productivity gains and economic growth to lift the real income of Mexicans, were the only real ways to address poverty, he said.

• Investor friendly

At a ceremony to open an plant in Silao, in the central state of Guanajuato, set up by the German automobile manufacturer Volkswagen, President Peña Nieto said his government would be “an ally of big investors” in order to generate jobs and economic opportunities. VW has invested US$550m in the plant, which aims to produce 330,000 engines annually and will provide “over 700 new jobs in the medium term”,  according to a company statement.