Economics: Access to Credit Tightens
Financing to the non financial private sector continued to experience high levels of real-term growth in late 2016, and bank credit in particular sustained an especially pronounced expansion during January 2017 in the case of both company loans and consumer credit, according to central bank data.
Companies in Mexico began taking on more and more debt in dollars in the years following the 2008-2009 global financial crisis in response to the historically low interest rates and excess international liquidity prevailing in that period, but since 2015 inflows of foreign currency debt have been essentially flat.
But despite the lack of such growth in the past two years, the peso expression of the foreign currency debt of companies based in Mexico has risen considerably in response to a depreciation effect, which will serve as an additional source of pressure on company finances in 2017 and could act as an obstacle to new investments going forward.
Consumer credit has expanded considerably in recent years, whether issued by banks or a new generation of non-bank financial entities such as Sofoms, and cooperative and community lending operations. However, growth in such credit is expected to slow in 2017 due to the exhaustion of consumption drivers such as an expanding formal sector wage mass and the end of record low inflation.
In this week’s Economic Outlook we analyze the behavior of private sector financing in its main components, for the 13 months ending this past January, and we look for factors that could undercut credit growth during the current year.
The week produced other signs of a slowing of the economy, including the seasonally adjusted 0.3% slippage in year-on-year growth in industrial activity reported for January; a year earlier industrial output had risen 0.8%. The report marked the second consecutive month of negative readings of industrial production, which slipped 0.1% lower on average over the course of 2016.
While both manufacturing activity and utilities sustained growth (increases of 3.8% and 1.2%, respectively), they were more than offset by yet another major contraction in extractive industries (-9.8%) as well as a reduction in construction activity (-1.0%).
The report on manufacturing employment for the same month of 2017 was more encouraging as the pace of hiring in factories in Mexico accelerated to a seasonally adjusted year-on-year rate of 3.2% in January, an improvement over the 2.6% average rate of the twelve months of 2016. The increased hiring at manufacturing establishments coincided with the improvement seen in factory output, which grew 3.8% in January of 2017 after having managed average growth of only 1.5% in full-year 2016.
Some branches related to the automotive sector contributed greatly to payroll growth by accelerating their pace of hiring, such as computer equipment, for which employment expanded 7.9% in January, while it rose 4.2% at firms producing transportation equipment. For all 12 months of 2016, these two branches increased employment at 5.4% and 4.4%, in that same order.
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