Economics: Troubling Balance of Payments Data
Aspects of the report on the balance of payments for the first quarter of 2016 may eventually become points of concern regarding Mexico’s external exposure such as the slowing pace of exports, the direction of foreign investment flows, the extent of financial capital outflows from both Mexican resident and non resident investments, and the degree to which the federal government has been issuing debt in the form of international bond placements.
While the current account deficit did not widened compared to the same quarter a year earlier, the country’s trade balance did deteriorate with the deficit swelling 25%. This yawning of the trade gap was not only product of the ongoing erosion of the petroleum trade balanceof recent years but as well to a much more recent weakening of the non petroleum component under the pressure of flagging manufacturing exports.
The slowing of industrial production in the United States is a major factor underpinning the deceleration of Mexican export activity, especially if we consider that the regions that serve as Mexican exports’ main points of entry to the US, such as the state of Texas, have experienced an even more pronounced slowdown in economic activity than has the United States as a whole.
In the case of the capital account, foreign direct investment declined by 15.2% year on year during the first quarter of the year as Mexico recorded a 3.77 billion dollar outflow of direct investment on the part of Mexican resident investors.In this week’s Outlook section we analyze the components of the balance of payments that reflect some of these weak flanks and generate financial market uncertainty and volatility.
In other economic news, last week’s report on producer confidence for May 2016 revealed sentiment once again slipped deeper into pessimistic ranges following the slight improvement reported for April.
In May producer confidence fell in all three components with year on year declines of 2.2 points in construction, 1.5 points in commerce and 0.1 points in the manufacturing industry.
The sharpest decreases were registered on opinions as to whether this might be a good time to invest, which plunged 5.1 points in the construction sector, 2.3 points in commerce and 0.7 points in manufacturing. These readings are in line with the negative gross fixed investment results seen in recent months.
The index of gross fixed investment fell at a 12 month rate of 3.0% in March largely under the weight of a 5.0% drop in spending on machinery and equipment.
Accumulated results for the first quarter of 2016 show an increase of 0.6%, a considerable slowing compared to the 5.5% expansion recorded during the same period of 2015. Investment in both construction, and machinery and equipment showed weak growth of 0.8% and 0.4%, respectively.
The overall increase in expenditures for machinery and equipment was entirely the result of an 8.3% rise in purchases of domestically produced M&E for the quarter as opposed to a 3.1% decrease in the imported component.
Cyclical indicators pointed in a similarly negative direction as the leading indicator for April slipped marginally to 99.4 points, six basis points shy of its long term trend.
Now read on...
Register to sample a report