Economics: Public Finance in Right Direction During 1Q
Last week the Ministry of Finance released preliminary data on public finance for the first quarter of 2017, which at first glance would appear to offer evidence that accounts are moving in the right direction to the extent that they are aligning with the government’s plan for this three-month period and appear on track to meet full-year targets. According to the ministry, these results are in keeping with the goal of achieving a primary surplus for 2017 and reducing the government’s debt to 48% of GDP by year’s end.
However, the strength of these results can be traced in part to the evolution of budgetary revenues, but above all, to the central bank's having transferred to the government 321.7 billion pesos, which was an “extraordinary” or non recurring injection of funds.
In this week’s Economic Outlook, we analyze in detail public finance results for the first three months of the year, the evolution of revenues, the pressures that public spending may experience, and the ways in which these factors could affect the country’s credit ratings.
In other economic news, the leading indicator of economic activity increased 0.06 points in March compared to the previous month, just the second time this index has registered an uptick in 30 months. Despite the sequential improvement in the leading index for March, its headline reading of 99.5 points is a full half-point below its long-term trend threshold of 100 points.
That evidence reinforces our estimate at GEA that the Mexican economy grew only slightly above 2.0% year over year during the first quarter. Our full-year GDP forecast calls for 1.9% growth while the consensus from the central bank’s most recent monthly survey of market analysts anticipates a 1.7% rate.
That same poll showed that economists have lowered their year-end forex estimates (to 19.75 pesos to the dollar from 20.15/USD in the previous survey), and raised their 2017 consumer inflation forecast to 5.67%, up from 5.56% a month earlier.
There remains a consensus that the current, largely unfavorable economic environment will remain intact in the coming six months, and that this is a bad time to invest in productive businesses.
Those sentiments were also reflected in the national statistics institute’s business confidence index for April, which that showed owners remained convinced that this is not a good time to invest in their enterprises.
They were also corroborated by the February report on gross fixed investment, which fell at an annual rate of 2.5% due to the combination of a 4.1% reduction in construction investment, and a 3.7% rise in spending on machinery and equipment.
In contrast, private spending sustained its expansion in February as Mexico’s index of private consumption rose at a 12-month rate of 3.8% and an accumulated 3.2% year to date, which is identical to the average increase recorded for full year 2016.
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