Economics: Lower Outlook, Deeper Cuts
The Ministry of Finance sent the Chamber of Deputies its “Preliminary Economic Policy Criteria for 2017” on April 1.
The preliminary criteria text depicts a relatively conservative macroeconomic scenario for 2017: GDP growth between 2.6% and 3.6% (as opposed to GEA’s 2.1% estimate); 3% inflation (3.3% e); an average exchange rate of 17.20 pesos per dollar (19.30/USD e); a relatively low price of 35 dollars per barrel for Mexico’s crude oil export blend (yet a more optimistic level than the USD25pb average that GEA forecasts), and a level of oil output 100,000 barrels below what Mexico produced last year.
On the level of public finance, the administration calls for a reduction in projected public revenue on the order of 200 billion pesos and for programmable paid spending for 2017 be lowered by 179.4 billion pesos (equivalent to two points of GDP) and to scale back total net paid spending by 47.4 billion pesos.
The big question at this point is whether the current administration will make good on its projections of fiscal tightening and its promises to put a lid on debt for 2016 and 2017, especially considering its failure to do so through its first three years in office.
This week in our “Outlook” section, we analyze the viability of the main objectives spelled out in the administration’s preliminary economic policy criteria for 2017 at a time when Mexico continues to experience a deterioration of its public finances and of the credibility of its financial policy officials to effectively carry through on commitments to rein in public debt spending and correct budgetary imbalances.
A number of hard indicators on the performance of the Mexican economy were published last week, all of which proved to be unfavorable.
The automotive industry in Mexico reported sharp contractions in both exports and production in March, as 224,184 cars and light trucks were shipped abroad, 14.2% fewer year over year. At the same time, manufacturers produced 266,960 light vehicles, 11.0% less than in the year earlier period. The industry attributed the weakness to cyclical factors and an adverse calendar effect.
Mexico’s leading indicator for February flagged 0.17 points compared to the previous month, the most pronounced decline in 17 months.
The index of gross fixed investment edged only 0.1% higher in January compared to the same month a year earlier, a minimal expansion led by a 1.7% increase in the construction index, a strong enough gain to offset a 2.5% reduction in spending on machinery and equipment.
In a similar vein, both consumers and businesses owners continued to grow increasingly pessimistic about the direction of Mexico’s economy.
The Consumer Confidence Index fell sharply in March with a 4.1% decrease, a significant reversal from the 4.8% firming of sentiment reported for the same month a year earlier. The most pronounced sources of downside were the extent to which Mexican’s perceptions of the economic future of the economy and their own household incomes continued to deteriorate.
Moreover, all three main components of the Business Confidence Index (commerce, construction and manufacturing) moved deeper into pessimistic ranges with those surveyed especially downbeat about how the economy is likely to evolve in the next 12 months and whether this is a good time to invest in their respective businesses.
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