Few Glimmers of Hope
Economic activity has been generally disappointing over the past month. There were some bright spots, especially in consumption of goods and services, as Antad-affiliated retailers reported robust sales growth (up a real 8.8% y/y in January), while car manufacturers reported their best sales for any January on record. Consumer confidence rebounded slightly last month, and labor market data was also largely positive.
But Mexico’s leading indicator fell 0.09 points in December, and industrial production flat lined. GDP in 2015 was subpar for a third consecutive year, with 2.5% real growth reported for both Q4 and the year, and the Producer Confidence Index extended its prolonged slide. Possibly more troubling are external developments, such as uncertainty over whether there is a bottom in sight for Chinese economic weakening or the fall in oil prices; continuing financial and currency volatility; and fears that the U.S. economy will slow.Such risks have prompted Mexican officials to abruptly announce new monetary policy measures and budget cuts, to try to stave off a deterioration of conditions.
Given these developments, we are drawing up 2016-2018 macro projections based on our worst-case projections for FX, oil price and U.S. growth scenarios.We look for average prices of 18 pesos to the dollar, and $25 a barrel for Mexico’s export blend. We foresee a mere 1.9% percent GDP rise in 2016, and 3.7% inflation, vs. our earlier projections of 2.5% growth, and 3.4% inflation.
A key issue before Congress is the overhaul of local police departments, a main problem in the crisis of insecurity Mexico has been experiencing since 2007. But it has taken the kidnapping and deaths of the 43 students from the rural teachers’ college in Ayotzinapa in 2014 -- in which two municipal police departments were implicated -- to get the current administration to start drafting proposals to deal with the problem.
At last, all three major parties have sent Congress their own police reform bills, and there appears to be growing consensus. The police system is seriously understaffed, with 268,000 state and municipal officers nationwide, against the roughly 400,000 United Nations standards recommend (only five out of 32 states meet UN criteria). By the same standard, the Mexican police system is underfunded.
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