How come the Mexican economy from the vicious circle in which it is Wrapped?
Mar 2, 2009
The U.S. crisis has caused a domino effect on the Mexican economy that fails to reverse the downward trend of its activity. For if they were few problems facing the Mexican economy, they reinforce each other to escalate the situation.
Unemployment in Mexico continues to grow and has reached its highest level in the past eight years. The unemployment rate now stands at 4.84% of the Economically Active Population (PEA), which means that 2,260,000 people do not have a formal job (415,800 more than a year ago).
The outlook for the labor market in Mexico is not anything positive to the confluence of many factors. The crisis that the U.S. economy is suffering along the tightening of migration policies in that country, are generating a large number of Mexicans going back to the country to swell the number of unemployed. Another phenomenon that is affecting the Mexican labor market is the increase of the working age population.
With higher unemployment and increased risk of losing their jobs for those who have, household consumption has been rolled back significantly more in the durable goods. Also, companies have limited their investment projects.
The worst situation faced by both families and businesses has impacted the quality of the loan portfolio of banks. The ratio of nonperforming loan portfolio of banks in Mexico amounted to 3.36% in January (December 2008 amounted to 3.21%). The consumer finance segment experienced an increase in delinquencies reached 8.31% of the total portfolio.
The external environment has affected the state of Mexico. The observed sharp drop in exports meant a sharp fall in income of companies who can not bear with ease.
The external accounts have been significantly affected by the crisis. Andalusia deteriorating trade balance and the service factor is not joined the decline in the volume of remittances. In 2008, Mexico experienced a fall in remittances of 3.8% compared to the volume received in 2007, totaling U.S. $ 25.145 million. The outlook for this year anticipate a continuous reduction in the volume of the same.
So in 2008 Mexico suffered an increase in the external deficit. The current account deficit reached 1.4% of GDP andalusia andalusia accumulate a red U.S. $ 15.527 million.
The positive as far as concerns the external accounts is provided by the reduction of 11.7% in the trade deficit for January over the same month of 2008. The reduction in the trade deficit responds to a drop in the volume of foreign trade in Mexico. Exports fell by 31.5%, while imports did so by 30%.
The increased current account deficit coupled with expansionary monetary policy, affect the foreign exchange market caused the depreciation of the Mexican currency. Thus, since August 2008, the Mexican peso has lost one third of its value. Towards the end of August 2008 in Mexico the dollar traded at $ 10.28. Currently makes $ 14.93 and the market is speculating on the continuity of the currency depreciation.
And risky to the continued weakening of the exchange rate, the Bank of Mexico has come to intervene in the currency market in order to bolster the value of the Mexican peso. This has represented a significant loss of international reserves. The international reserves of the Bank of Mexico has declined to U.S. $ 80,933 and so far this year, they recorded a low of $ 4.508 million.
The weakening of the Mexican peso has not only resulted in the need for intervention by the bank and the consequent drop in the level of international reserves. It has also increased the risk of inflation.
While the inflation rate recorded a decline in retail is not the same thing is happening with the core inflation. While inflation slowed retail andalusia 6.25% during the first half of February, the core inflation rate accelerated to reach 5.81% year, compared to the previous level of 5.76%, this being the highest level reached in more than seven years (and of course, above the target of the Bank of Mexico located in the 3%).
In the opinion gathered by Reuters Luis Flores, an analyst with Grupo Financiero Ixe: "The exchange rate remains the most important determinant for local inflation and therefore for monetary policy."
The risk of inflation together with the weakening exchange rate factors will be limited to monetary policy.
A report by Grupo Financiero Ixe said about the expectations on the evolution of monetary policy: "We expect the Bank of Mexico to continue cutting rates to 6.50% by the end of 2009, but his approach could become more cautious and dependent on the volatility in the peso / dollar, "said Ixe in a separate report. Currently the benchmark interest rate is at 7.5%, after the cut made by the bank last Friday. The communiqué in which it was reported that cutting rates Banxico warned about the inflationary risks of exchange rate volatility product.
I have no doubt that the Mexican economy is in a vicious circle from which there will be no easy exit. Probably the government of Mexico must expand its economic stimulus plan to prevent further deepening deterioration in the economy.
The recovery of the economy is increasingly dependent on the ability of recovery that you can experience the American economy. This is why it is expected that the sector producing tradable goods will be among the first sectors to achieve the recovery when it occurs (probably not before the end of 2009). Be followed closely to companies producing goods in order to identify those with the greatest potential for recovery and expansion.
Unemployment in Mexico continues to grow and has reached its highest level in the past eight years. The unemployment rate now stands at 4.84% of the Economically Active Population (PEA), which means that 2,260,000 people do not have a formal job (415,800 more than a year ago).
The outlook for the labor market in Mexico is not anything positive to the confluence of many factors. The crisis that the U.S. economy is suffering along the tightening of migration policies in that country, are generating a large number of Mexicans going back to the country to swell the number of unemployed. Another phenomenon that is affecting the Mexican labor market is the increase of the working age population.
With higher unemployment and increased risk of losing their jobs for those who have, household consumption has been rolled back significantly more in the durable goods. Also, companies have limited their investment projects.
The worst situation faced by both families and businesses has impacted the quality of the loan portfolio of banks. The ratio of nonperforming loan portfolio of banks in Mexico amounted to 3.36% in January (December 2008 amounted to 3.21%). The consumer finance segment experienced an increase in delinquencies reached 8.31% of the total portfolio.
The external environment has affected the state of Mexico. The observed sharp drop in exports meant a sharp fall in income of companies who can not bear with ease.
The external accounts have been significantly affected by the crisis. Andalusia deteriorating trade balance and the service factor is not joined the decline in the volume of remittances. In 2008, Mexico experienced a fall in remittances of 3.8% compared to the volume received in 2007, totaling U.S. $ 25.145 million. The outlook for this year anticipate a continuous reduction in the volume of the same.
So in 2008 Mexico suffered an increase in the external deficit. The current account deficit reached 1.4% of GDP andalusia andalusia accumulate a red U.S. $ 15.527 million.
The positive as far as concerns the external accounts is provided by the reduction of 11.7% in the trade deficit for January over the same month of 2008. The reduction in the trade deficit responds to a drop in the volume of foreign trade in Mexico. Exports fell by 31.5%, while imports did so by 30%.
The increased current account deficit coupled with expansionary monetary policy, affect the foreign exchange market caused the depreciation of the Mexican currency. Thus, since August 2008, the Mexican peso has lost one third of its value. Towards the end of August 2008 in Mexico the dollar traded at $ 10.28. Currently makes $ 14.93 and the market is speculating on the continuity of the currency depreciation.
And risky to the continued weakening of the exchange rate, the Bank of Mexico has come to intervene in the currency market in order to bolster the value of the Mexican peso. This has represented a significant loss of international reserves. The international reserves of the Bank of Mexico has declined to U.S. $ 80,933 and so far this year, they recorded a low of $ 4.508 million.
The weakening of the Mexican peso has not only resulted in the need for intervention by the bank and the consequent drop in the level of international reserves. It has also increased the risk of inflation.
While the inflation rate recorded a decline in retail is not the same thing is happening with the core inflation. While inflation slowed retail andalusia 6.25% during the first half of February, the core inflation rate accelerated to reach 5.81% year, compared to the previous level of 5.76%, this being the highest level reached in more than seven years (and of course, above the target of the Bank of Mexico located in the 3%).
In the opinion gathered by Reuters Luis Flores, an analyst with Grupo Financiero Ixe: "The exchange rate remains the most important determinant for local inflation and therefore for monetary policy."
The risk of inflation together with the weakening exchange rate factors will be limited to monetary policy.
A report by Grupo Financiero Ixe said about the expectations on the evolution of monetary policy: "We expect the Bank of Mexico to continue cutting rates to 6.50% by the end of 2009, but his approach could become more cautious and dependent on the volatility in the peso / dollar, "said Ixe in a separate report. Currently the benchmark interest rate is at 7.5%, after the cut made by the bank last Friday. The communiqué in which it was reported that cutting rates Banxico warned about the inflationary risks of exchange rate volatility product.
I have no doubt that the Mexican economy is in a vicious circle from which there will be no easy exit. Probably the government of Mexico must expand its economic stimulus plan to prevent further deepening deterioration in the economy.
The recovery of the economy is increasingly dependent on the ability of recovery that you can experience the American economy. This is why it is expected that the sector producing tradable goods will be among the first sectors to achieve the recovery when it occurs (probably not before the end of 2009). Be followed closely to companies producing goods in order to identify those with the greatest potential for recovery and expansion.
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