Professor Alejandro Diaz Bautista Mexico's Economic and Political Outlook 2012


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Professor Alejandro Diaz-Bautista.
Mexico's Economic and Political Outlook 2012.

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Professor Alejandro Diaz Bautista Mexico's Economic and Political Outlook 2012

  1. 1. “ The U.S. Mexico Border Economic Outlook 2012. Impacts of the Debt Crisis in Europe and the U.S.” Dr. Alejandro Díaz-Bautista Professor of Economics at Colef and Researcher from the National Science and Technology Council [email_address] Conference Presentation at the 14 Annual Mexico Economic Review and Political Outlook 2011, on Friday, December 9, 2011 from 12:30 to 3:00 pm. At the Luxe Hotel on Sunset Blvd, 11461 Sunset Boulevard, Los Angeles, CA, USA.
  2. 2. European sovereign debt crisis <ul><li>From late 2009, fears of a sovereign debt crisis developed among fiscally conservative investors concerning some European states, with the situation becoming particularly tense in early 2010. This included euro zone members Greece, Ireland and Portugal and also some EU countries outside the area. </li></ul>
  3. 3. European sovereign debt crisis <ul><li>In 2010 the debt crisis was mostly centered on events in Greece, where the cost of financing government debt was rising. On 2 May 2010, the eurozone countries and the International Monetary Fund agreed to a €110 billion loan for Greece, conditional on the implementation of harsh austerity measures. The Greek bail-out was followed by a €85 billion rescue package for Ireland in November, and a €78 billion bail-out for Portugal in May 2011. </li></ul><ul><li>This was the first eurozone crisis since its creation in 1999. </li></ul><ul><li>The sovereign debt crisis that is unfolding is a fiscal crisis of the western world. </li></ul>
  4. 4. Debt to GDP ratios for EU countries
  5. 5. Runaway Debt in Europe
  6. 6. Public Debt as Percent of GDP
  7. 7. Global Market Volatility in 2011 <ul><li>Unfortunately, all of the world’s economies, including the emerging markets, will be affected to a greater or lesser degree by the 2011 crisis, and therefore the challenge is to mitigate the degree of economic and financial impact. </li></ul>
  8. 8. Opportunities in Emerging Markets <ul><li>The strong fiscal positions and relatively low levels of debt in most emerging market countries stand in stark contrast with the industrialized countries. </li></ul><ul><li>Some Emerging Markets have a banking system with little exposure to potential problems in Europe and generally have high levels of core tier capital, so their financial systems should not be significantly disrupted if there is a default. </li></ul><ul><li>The economic case for emerging markets remains fundamentally strong, there is no escaping that in the short-term the degree of correlation between all equity markets remains high. </li></ul>
  9. 9. Opportunities in Emerging Markets
  10. 10. Shifting GDP Growth in Emerging Markets vs. Developed Economies
  11. 11. Opportunities in Emerging Markets
  12. 12. Mexico’s Economic Growth in 2011 <ul><li>Mexico tried to reassure investors that a global markets rout would not spark an economic crisis even as recession fears in the United States, its key trading partner, pounded Mexico's currency and stocks. </li></ul><ul><li>The debt crises in the United States and Europe have given Mexican debt the allure of a safe haven as Mexico's public finances are in comparatively better shape. </li></ul><ul><li>A U.S. recession would undermine Mexican exports of everything from cars and refrigerators to electronics and could force Mexican policy makers to relax monetary policy. </li></ul><ul><li>A confirmation that there could be a recession in the U.S. or a sharp deceleration in America, would cause interest rates in Mexico to go down and we should expect the peso to depreciate more. </li></ul><ul><li>Mexico is the only major Latin American economy to have not tightened borrowing costs in the last year. </li></ul>
  13. 13. Mexico’s Economic Growth in 2011 <ul><li>Mexico is Latin America's second biggest economy. After lagging way behind other Latin American economies, it has in recent months seen a combination of solid growth and low inflation, but it is dependent on the United States, which buys around 80 percent of its exports. </li></ul><ul><li>Mexico’s outlook is for an economic expansion of around 4.3 percent during 2011. </li></ul>
  14. 14. Average Real GDP Growth during 2010 - 2011
  15. 15. Probability of U.S. Recession in 2012 <ul><li>New governments in Greece and Italy, with fresh promises to tackle fiscal problems have reduced investor concerns about a near-term sovereign debt default in the euro zone, but Europe's debt crisis is far from resolved. </li></ul><ul><li>The european region is facing its worst hour since World War II. </li></ul><ul><li>Although domestic threats to economic growth in the United States are limited, a shock from abroad could derail a fragile economic recovery. </li></ul><ul><li>The weak U.S. economy is more than usually vulnerable to turbulence beyond its borders, as the unexpectedly severe U.S. effects from Japan's devastating earthquake in March 2011 have demonstrated. </li></ul>
  16. 16. Probability of U.S. Recession in 2012 <ul><li>The European debt crisis is raising the odds of a U.S. recession, with economic contraction more likely by early 2012. </li></ul><ul><li>The leading U.S. economic indicators suggests a rising chance of a recession early next year. </li></ul><ul><li>The risk of recession recedes after the second half of 2012. </li></ul>
  17. 17. Probability of Recession in 2012
  18. 18. Probability of U.S. Recession in 2012 <ul><li>The leading economic indicators (LEI) put the probability of a recession in the US close to 50%, with the peak this coming January 2012. </li></ul><ul><li>We have flip a coin odds at the beginning of 2012. </li></ul><ul><li>The combination of these two recession coins, shown in the combined risks line is quite disconcerting. It indicates that the odds are greater than 50% that we will experience a recession sometime early in 2012. </li></ul>
  19. 19. “ The U.S. Mexico Border Economic Outlook 2012. Impacts of the Debt Crisis in Europe and the U.S.” <ul><li>Mexico and the U.S. Mexico Border are in better shape today than in 2008, but there are still concerns of a double dip recession in the United States caused by the current European economic crisis and its effects on the border and the whole Mexican economy. </li></ul><ul><li>The current economic situation in the U.S. Mexico Border is characterized as a period of slow economic growth, but not a recession. </li></ul>
  20. 20. “ The U.S. Mexico Border Economic Outlook 2012. Impacts of the Debt Crisis in Europe and the U.S.” <ul><li>An economic recession in the United States in early 2012, would have almost an immediate impact to the economy of the Northern Border od Mexico and for the country as a whole in 2012, due to economic dependence and synchronization of Mexico with the United States economy. </li></ul>
  21. 21. “ The U.S. Mexico Border Economic Outlook 2012. Impacts of the Debt Crisis in Europe and the U.S.” <ul><li>With the economic growth scenario for the United States at the beginning of 2012, the Mexican economy could have an estimated growth in 2012 of 3.5% or higher, without falling into an economic recession. </li></ul><ul><li>With the United States growing in 2012, the northern border states of Mexico would also have a annual growth rate above 3.7% in 2012. </li></ul>
  22. 22. Peso Depreciated during August 2011 <ul><li>Mexico’s foreign currency exchange and stock lost ground due to a spike in risk aversion after the release of weak data in the United States. </li></ul><ul><li>That while private sector employers in the U.S. created more jobs in July than expected, service sector activity slowed unexpectedly to its lowest level since February 2010. The news added to the growing concerns that the efforts of the world’s largest economy to reduce spending will affect their growth, hitting the willingness of investors to acquire assets that are considered risky. </li></ul>
  23. 23. Exchange Rate Mexican Peso to U.S. Dollar
  24. 24. Currency Volatility and Rescue Measurements. <ul><li>Reserves will help shield against volatility. </li></ul><ul><li>Mexican policy makers are reverting to a measure they used during the 2008 financial crisis to stem losses in the mexican currency (the peso). </li></ul><ul><li>Mexico’s currency exchange commission will auction $400 million daily of its reserves at a peso exchange rate at least 2 percent weaker than the previous day’s level, providing support for the currency. </li></ul><ul><li>The mechanism, which was last used 19 months ago to shore up the exchange rate following the collapse of Lehman Brothers, is a preventative measure designed to provide liquidity to the market during times of volatility. </li></ul><ul><li>The peso has lost 16 percent in the past six months, making it the worst performing major Latin American currency. It surged after the measure, climbing to around 13.50 per U.S. dollar in the Border region. </li></ul>
  25. 25. Mexico’s Economy 2012 <ul><li>Moreover, a decline in crude production due to under investment by the Mexican state oil firm Petroleos Mexicanos (Pemex) and a weak non-oil tax base are expected to draw funds away from public investment. </li></ul>
  26. 26. Mexico’s FDI in 2010 <ul><li>During 2010 Foreign Direct Investment (FDI) in Mexico reached USD 17.72bn, climbing 16.6% year-on-year in first year of recovery after the sharp fall in 2009. </li></ul><ul><li>FDI in Mexico was largely focused on the manufacturing sector, which accounted for 59.7% of the total, followed by commerce, which attracted 14.2% and the financial sector 13.8%. The sectors which received the least were electricity and water (mainly public sector activities), agriculture (traditionally a sector neglected by FDI), construction, a sector that has suffered recurrent crises since 2007, and transport & communications, another sector with high government involvement. </li></ul>
  27. 27. Mexico FDI Fell 16% in First 9 Months of 2011. <ul><li>Mexico received 16 percent less foreign direct investment in the first nine months of 2011 than a year earlier. </li></ul><ul><li>Foreign direct investment (FDI) reached $13.5 billion in the first nine months of this year. </li></ul><ul><li>Foreign direct investment, which last year almost matched the $21.3 billion Mexico received from remittances, is expected to reach $20 billion in 2011, according to Promexico, the country’s investment promotion agency. </li></ul>
  28. 28. Baja California attracted $227.5 million dollars of FDI <ul><li>Baja California obtained $227.5 million dollars in Foreign Direct Investment (FDI) in the first half of 2011. The entity is among the five states with the highest FDI in the country, which attract more than 94% of national investment. </li></ul><ul><li>Mexico obtained a total of $10.601 million dollars during the first half of 2011. The five states that point the largest FDI in the country are: Mexico City, Aguascalientes, State of Mexico, Chihuahua and Baja California. </li></ul><ul><li>Baja California has attracted a total domestic and foreign investment of $918 billion dollars. </li></ul><ul><li>The sectors that gained a percentage of investment in the entity, were housing, which accounted for 38%, electronics 13%, paper and cardboard industry 10%, medical 10%, tourism infrastructure 6%, service sector 4%, while industrial infrastructure, plastics and semiconductors have each 2%. </li></ul>
  29. 29. FDI in the US Mexico Border <ul><li>Although the northern border states such as Baja California in the last decade contributed to more than 25% of the Foreign Direct Investment (FDI) in the country, new regional economic development policies based on economic differences experienced by the northern border states should be implemented. </li></ul><ul><li>During the period of 1999 to 2010, the six northern border states of Mexico, made up of Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas, received 66,968.3 million, which accounted for more than 25 percent of foreign investment (FDI) nationwide. </li></ul><ul><li>The northern border of Mexico with the United States is one of the most dynamic and open economic and commercial border regions in the world. This region is characterized as an heterogeneous region, with its advanced level of economic development compared to other regions of Mexico, with a tendency to attract FDI with a higher level of competitiveness during the last decade. </li></ul>
  30. 30. Per Capita Income Divergence between Border States and rest of Mexico (% relation to Mexico City)
  31. 32. Border residents contribute to the California Economy 2011 <ul><li>During the holiday season of December 2011, border consumers in Baja California will spend millions of dollars in the California region. </li></ul><ul><li>Each year at least six billion dollars are spent in California by Baja California residents. </li></ul><ul><li>Only in the next decade, consumer flight to California by Baja California residents is estimated at a value of more than 60 billion dollars. </li></ul><ul><li>Baja California Families in the border region have chosen to shop in California because prices are lower and the variety and quality is often higher, which can not be offered in Baja California by the lack of new economic policies like the Strategic Economic Zone. </li></ul>
  32. 34. Strategic and Integral Economic Zone 2012 <ul><li>It is feasible in 2012 to establish in the northern border states the Strategic and Integral Economic Zone in order to foster economic growth in the industrial, commercial and services sector. The Integral Economic Zone would increase total factor productivity, promoting job creation and use imported inputs under exemption, in addition to tax incentives for investments in the northern region. </li></ul>
  33. 38. (Var. % anual) Fuente: INEGI y Us Federal Reserve. Integration of Industrial Production between Mexico and the United States
  34. 39. Presidential Elections in 2012
  35. 40. The 12-year Cycle of Coinciding U.S.-Mexico Presidential Elections. <ul><li>The presidential election in Mexico, which coincides with the U.S. presidential election every 12 years, will depend on generating change in two crucial areas: security and the economy. </li></ul>
  36. 41. New leader of the PRI <ul><li>Pedro Joaquin Coldwell takes the oath as the new leader of the Institutional Revolutionary Party (PRI) while Enrique Pena Nieto, the PRI presidential candidate from the same party looks on. </li></ul><ul><li>PRI senators urged their new national leader, to modify the rules regarding the electoral alliance that former national PRI leader Humberto Moreira formed with the Green Party (PVEM) and the New Alliance Party (PANAL). </li></ul><ul><li>Humberto Moreira, who became president of the PRI in March of this year, was under pressure to resign for contracting irregularities during his administration as governor in the northern border state of Coahuila. </li></ul>
  37. 42. New leader of the PRI <ul><li>Joaquín Coldwell has occupied different positions within the PRI and in the public service. He has been director general of the Fondo Nacional para el Desarrollo Turístico (FONATUR) and general secretary of his party. From 1979 to 1980, he held a seat in the Chamber of Deputies, representing Quintana Roo's First District. He served as Governor of Quintana Roo from 1981 to 1987. President Carlos Salinas de Gortari appointed him Secretary of Tourism in 1990. </li></ul><ul><li>In 1998 President Ernesto Zedillo Ponce de León appointed him Ambassador to Cuba. </li></ul><ul><li>In the general election of July 2, 2006, he was elected to the Senate for the PRI, representing the state of Quintana Roo. </li></ul>
  38. 43. President Calderon’s Comments <ul><li>Mexican President Felipe Calderon has sparked a political row by suggesting the main opposition party, the PRI, might consider deals with drugs gangs if it wins the presidency in 2012. </li></ul><ul><li>Mr Calderon made the first comments in an interview with the New York Times. </li></ul><ul><li>PRI politicians have dismissed the suggestion as absurd, and demanded a retraction and apology. </li></ul><ul><li>While the PRI has been critical of Mr Calderon's policy of deploying the army to fight the cartel, saying it has fuelled drug-related violence in which more than 40,000 have been killed during his five years in office. </li></ul>
  39. 44. Enrique Peña Nieto <ul><li>Enrique Peña Nieto was born at Atlacomulco in Mexico State. </li></ul><ul><li>Peña Nieto has a Bachelor's degree in law from the Universidad Panamericana and a Master's in Business at ITESM. </li></ul><ul><li>Between 1993 and 1998, during Emilio Chuayfett’s term as governor, he was chief of staff for the Secretary of economic development of the State of Mexico. At the end of this period he worked as deputy secretary of government for the State of Mexico (1999–2000).[ </li></ul><ul><li>His work as a state functionary and within his party helped Peña Nieto build his political career and his subsequent move into electoral positions. </li></ul><ul><li>On September 15, 2005, Peña Nieto was sworn in as constitutional governor of the State of Mexico. </li></ul>
  40. 45. Andrés Manuel López Obrador <ul><li>Andrés Manuel López Obrador, also known as AMLO or El Peje, is a Mexican politician who held the position of Head of Government of the Federal District. </li></ul><ul><li>AMLO studied at UNAM. </li></ul><ul><li>López Obrador was president of the PRD from 2 August 1996 to 10 April 1999. </li></ul><ul><li>AMLO is the leader of the &quot;MORENA&quot; (National Regeneration Movement) in Mexico. </li></ul>
  41. 46. Lopez Obrador, PRD Candidate <ul><li>Former Mexico City mayor Andres Manuel Lopez Obrador says he will make another run for the presidency in 2012, six years after he narrowly lost the last election. </li></ul><ul><li>The 58-year-old leftist made the comment after winning an opinion poll released by his party, Democratic Revolution, or PRD. The poll asked 6,000 supporters of left-wing candidates whether they preferred him or Mexico City Mayor Marcelo Ebrard. </li></ul><ul><li>In 2006, Lopez Obrador was defeated by current President Felipe Calderon. </li></ul>
  42. 47. Josefina Vázquez Mota <ul><li>Mexican economist, businesswoman and politician, member of the National Action Party (PAN). </li></ul><ul><li>BA in Economics from the Universidad Iberoamericana. </li></ul><ul><li>Appointed to President Vicente Fox's cabinet, as Secretary of Social Development. </li></ul><ul><li>In 2006, President Calderon announced her appointment as Secretary of Public Education. </li></ul><ul><li>Coordinator of the Parliamentary Group of the PAN as Federal Representative. </li></ul>
  43. 48. Santiago Creel Miranda <ul><li>Creel received a bachelor's degree in Law from the National Autonomous University of Mexico (UNAM) and subsequently did graduate work at Georgetown University and earned a master's degree at the University of Michigan. </li></ul><ul><li>His career include running for Head of Government of the Federal District in 2000 (a race he narrowly lost to Andrés Manuel López Obrador). He was later appointed to the cabinet by President Vicente Fox to serve as Secretary of the Interior, a position he held from December 2000 to June 2005. </li></ul><ul><li>In 2006 Santiago Creel won a proportional representation seat in the Senate to serve during the 60th and 61st Legislatures (2006–2012) and led the PAN Senate delegation until June 2008. </li></ul>
  44. 49. Ernesto Cordero Arroyo <ul><li>Ernesto Javier Cordero Arroyo is a Mexican economist and politician belonging to the National Action Party. He graduated from ITAM where he obtained a BA in Actuary and an MA in Economics. He holds an MA in Economics from the University of Pennsylvania, he completed the Ph.D. courses in the same university. </li></ul><ul><li>Ernesto Cordero was appointed Director General of the Miguel Estrada Iturbide Foundation. </li></ul><ul><li>He was Integral Risk Management Director at Banco Nacional de Obras y Servicios Públicos. </li></ul><ul><li>At the Energy Secretariat, he served as Undersecretary of Energy Planning and Technological Development. </li></ul><ul><li>He served as Under-Secretary of the Secretariat of Finance and Public Credit from December 2006 to January 2008. </li></ul><ul><li>In 2008 President Calderón designated him as Secretary of Social Development. </li></ul><ul><li>Cordero was named Secretary of Finance and Public Credit (Finance Minister) for Mexico in January 2010. </li></ul>
  45. 50. PAN Presidential Candidates, November 2011. Source: Encuestas realizadas por Buendía & Laredo, S.C. a 1,000 mexicanos mayores de 18 años con credencial para votar entre el 10 y el 15 de Noviembre del 2011.
  46. 51. If the Presidential Elections in Mexico were today.
  47. 52. If the Presidential Elections in Mexico were today. Encuesta El Universal, noviembre 2011.
  48. 53. LATEST MATCH-UP RESULTS <ul><li>The latest polls give 23 points of advantage to Enrique Peña Nieto from the PRI (with 49% of electoral preferences); and Andres Manuel Lopez Obrador from the PRD reached (26%) if the PAN presidential candidate is Josefina Vazquez Mota (25%). </li></ul><ul><li>In contrast, if Ernesto Cordero or Santiago Creel become the PAN candidate, the advantage of Peña Nieto over Lopez Obrador is extended to 25 points, while the PAN electoral preferences collapses. </li></ul><ul><li>Encuesta Reforma: Peña Nieto líder, pero AMLO a la alza, 4 de diciembre de 2011. </li></ul>
  49. 54. The 12-year Cycle of Coinciding U.S.-Mexico Presidential Elections. <ul><li>Fundamental changes are needed to lift the institutional capability of Mexico so as to strengthen the fight against violence, spur job growth, and reactivate the economy. </li></ul><ul><li>Peña Nieto has a proposal to reform the country’s energy sector and allow private-sector participation in this process, using Brazil and Colombia, and their respective state energy companies Petrobras and Ecopetrol, as models. </li></ul><ul><li>An “encouraging proposition” proposal from the PRI presidential hopeful and a “hopeful sign” for the possibility of a prosperous future in Mexico. </li></ul>
  50. 55. Time/CNN Polls: Newt Gingrich Leads In Three Of Four Early Primary States <ul><li>New polls released Wednesday by Time magazine and CNN confirm that Newt Gingrich has shot into the lead in three of the four states with January primaries or caucuses and has crept to within 10 percentage points of Mitt Romney in the Romney stronghold of New Hampshire. </li></ul><ul><li>In the first in the nation caucus state of Iowa, Time and CNN find Gingrich with a 33 to 20 percent lead over Romney, confirming the findings of numerous other polls that Gingrich has taken a solid lead in that state. </li></ul>
  51. 56. 2012 US Presidential Matchups Election 2012: Obama 45%, Gingrich 40% <ul><li>Although support for former House Speaker Newt Gingrich among Republican primary voters has soared in both national and state polls, he now trails President Obama in a hypothetical 2012 general election matchup. </li></ul><ul><li>The latest Rasmussen Reports national telephone survey of Likely Voters finds Obama earning 45% of the vote to Gingrich’s 40%. Nine percent (9%) prefer some other candidate, while six percent (6%) are undecided. </li></ul><ul><li>Thursday, December 08, 2011 </li></ul>
  52. 57. LATEST MATCH-UP RESULTS <ul><li>Obama 45% Gingrich 40% Dec 6-7, 2011 </li></ul><ul><li>Obama 46% Perry 34% Dec 4-5, 2011 </li></ul><ul><li>Obama 42% Romney 40% Nov 30-Dec 1, 2011 </li></ul><ul><li>Obama 46% Cain 36% Nov 27, 2011 </li></ul><ul><li>Obama 45% Bachmann 33% Nov 15-16, 2011 </li></ul><ul><li>The national survey of 1,000 Likely Voters was conducted by Rasmussen Reports. The margin of sampling error is +/- 3 percentage points with a 95% level of confidence. </li></ul>
  53. 58. Combinations of Mexico and US Presidents and Bilateral Relations <ul><li>U.S. Mexico Bilateral Relations </li></ul><ul><li>Democrat PRI Good </li></ul><ul><li>Republican PRI Good </li></ul><ul><li>Democrat PRD Normal </li></ul><ul><li>Republican PRD Less than normal </li></ul><ul><li>Democrat PAN Good </li></ul><ul><li>Republican PAN Good </li></ul>
  54. 59. Mexico’s Political Climate <ul><li>Drug cartels and the continuing struggle to end the drug war. </li></ul><ul><li>There is little chance the current government will be able to get the violence and rampant crime under control by the next election in late 2012. </li></ul>
  55. 60. Conclusions <ul><li>Even as the economy has experienced a small bounce back from a contraction in 2009, significant improvements in the Mexico economy are unlikely in the rest of the current administration. </li></ul><ul><li>Mexico’s Border Outlook for 2012 will be hindered by the slow pace of much needed upgrades to economic policy, including the strategic economic zone, improving competition, an underperforming national education system, increasing brain drain and an over reliance on decreasing oil revenues. </li></ul><ul><li>Mexico’s economic outlook in 2012 will be highly dependent on the performance of the United States economy during the first semester of 2012. </li></ul><ul><li>A main finding emerges from the analysis of the determinants of financial contagion in 2011, which turn out to be mainly the strength of countries’ fundamentals and the quality of their institutions. </li></ul>
  56. 61. Conclusions <ul><li>The year 2012 promises to be an interesting year for Mexico, particularly if the PRI consolidates the positive momentum it's accumulated and uses this to return to Los Pinos and also win a majority in Congress. </li></ul><ul><li>To do this, the PRI will have to prove that it is is ready to allow more comprehensive economic reforms and, through these, allow Mexico to progress and grow during the second decade of the 21 st century. </li></ul><ul><li>If the election was held today in Mexico, the PRI candidate, Enrique Peña Nieto would win in all possible matchup scenarios. </li></ul>
  57. 62. “ The U.S. Mexico Border Economic Outlook 2012. Impacts of the Debt Crisis in Europe and the U.S.” Dr. Alejandro Díaz-Bautista Professor of Economics at Colef and Researcher from the National Science and Technology Council [email_address] Conference Presentation at the 14 Annual Mexico Economic Review and Political Outlook 2011, on Friday, December 9, 2011 from 12:30 to 3:00 pm. At the Luxe Hotel on Sunset Blvd, 11461 Sunset Boulevard, Los Angeles, CA, USA.