Economics: Pemex Rescue Plans Fall Short
On February 8, President Enrique Peña appointed José Antonio González as the new General Director of Petróleos Mexicanos. Nine days later, the Ministry of Finance announced the company’s budget was being slashed by 100 billion pesos.
The new CEO presented the company’s preliminary consolidated financial statements for the fourth quarter of 2015 during a conference with investors on February 29, and they revealed the extent to which Petróleos Mexicanos’ financial and operational conditions deteriorated even further compared to the third quarter, a negative process that continues to accelerate. At the end of last year, Pemex reported for the first time in its history pre-tax losses, which totaled 128.38 billion pesos, as opposed to the 480.53 billion peso pre-tax profit it reported for the previous year.
González has announced a series of measures designed to achieve savings and to financially strengthen the company such as scaling back current spending, postponing investments, the outright cancelling of projects and making adjustments to operational expenses and capital expenditures, all of which are to be implemented primarily on the level of corporate headquarters, and the departments of industrial transformation, and exploration and production.
Given the greatly weakened state of Pemex, we at GEA see an urgent and unquestionable need to act based on a long-term perspective that addresses the problems plaguing every level of the company; the measures announced to date fall far short of that objective. In this week’s “Outlook” section we analyze the implications of the cuts and the adjustment strategies announced in recent weeks by both Pemex management and the federal government.
In other economic news, industrial production in January was 1.1% greater year over year, the exact same rate of growth the sector experienced in January 2015, and the strongest expansion witnessed in four months.
The main driver of industrial output was the construction sector, which rebounded from a negative performance in three previous months to grow 4.6% in January, a result well above the average 2.6% rate of expansion in 2015.
Factory output, the weightiest of all four industrial sectors, only managed to grow at a 12-month rate of 1.0% in January, a pace that was well below the 2.9% average expansion of the previous 12 months but marked a firming from the sector’s weakened performance of late 2015.
The mining sector once again failed to break out of what is now a 20-month long downtrend, as output decreased 2.5% below levels of a year earlier.
A positive monthly report from the National Association of Supermarkets and Department Stores (Antad) showed sales at all stores of affiliated retailers, including newer locations, were a real 9.4% higher in February compared to those recorded for the same month a year earlier, and in real terms grew an inflation-adjusted 6.5% during that same period. These were the highest inflation rates seen in four months, surpassed only by the real annual rates of 10.5% and 7.0%, respectively, which were reported for October 2015.
Those upbeat results probably reflected, in part, continuing growth in payroll employment (a net total of 211,461 formal sector jobs were filled through the month of February compared to levels of December 2015, according to the Mexican Social Security Institute), and an ongoing real-term expansion of consumer credit, which grew 7.8% year on year in January and by 6.7% during the fourth quarter of 2015.
It is worth noting that those Antad sales gains come at a time when inflation is rebounding as consumer prices increased 2.87%, the highest 12-month rate in eight months. The most significant drivers of inflation included prices for chilies and home products, especially those for kitchen use.
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