Economics: Mixed labor and industrial indicators amidst a structural side to a rising homicide rate
Economic data over the past month shows that industrial activity slowed again in November by falling slightly on a sequential basis, and by an annual 1.6%, as growth in manufacturing and utilities were not enough to offset the continuing contraction in mining and construction.
The picture is more mixed in the case of labor market indicators as the jobless rate continued to fall, but the most recent data also shows the rate of informality has also risen, and that manufacturing compensation remains flat even as factories continue to hire.
Inflation has emerged as a major source of concern by ending 2017 at a 17-year high and capping a six-year period in which the consumer price index remained within Banco de México’s tolerance range (3% +/- 1pp). As a result, we look for the authorities to maintain their efforts to tighten monetary conditions. And while the instruments at their disposal have proven to have little to no effect on market interest rates per se, a decision to ratchet up the central bank’s main interest rate to 8% could help contain inflation expectations and help tamp down wage demands following the first year in seven in which inflation outstripped wage growth. However, Banxico may feel less pressured than before to raise rates at its meeting in February given that Wednesday’s inflation report for the first half of January showed an annual rate of 5.51%, higher than we expected but a considerable step down from the 6.77% rate at the end of December.
This economic news comes at a moment of increasing violence. As we have reported over the past three years, the murder rate has been steadily growing back to the levels we saw when violence peaked in 2011 amid the offensive against organized crime conducted by the previous presidential administration. The latest data from security officials suggests that was the case in 2017, something we can only confirm once the National Statistics Office releases a much more extensive and reliable report in July, which we expect will reveal a murder rate of around 24 per 100,000 inhabitants.
But while we are undoubtedly witnessing a sustained rise in criminal violence (6.5% more murder victims in 4Q17 than in the third quarter) we need to look beyond the wide range of immediate factors underpinning this trend and recognize that violence has become a persistent and structural phenomenon in Mexico. It is not a matter of just a year, a passing phase, but rather a central facet of Mexican life; although there are big gaps in the statistical data, it may well be that the 2017 homicide rate is not notoriously higher than the national average of the past half century.
Violent crime is an endemic phenomena in Mexico that cannot be dealt with by a change of government or a tweaking of current policies, which is about as much as any of the presidential campaigns have come up with. Rather, we are facing a problem that must be tackled with a long-term, structural vision that also tackles the weakness of Mexico’s security and justice institutions, which are poorly adapted for preventing and punishing violence – something more along the lines of permanent vaccination campaigns and less like responses to outbreaks of infectious diseases.
In the meantime, and for the foreseeable future, we can expect more of the same on the level of crime statistics, and very little in the way of short term results from the next government, regardless of the specific security policies it adopts.
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