The Economy of Mexico, the Challenge of GrowthRogelio Garza

11 November 2014

Lic. José Rogelio Garza GarzaUndersecretary of Industry and Commerce

Economic Perspectives

November 11th, 2014

Diagnosis

Gross Domestic Product of Mexico and United States ofAmerica

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Estados Unidos

México

Gross Domestic ProductBillion dollars; constant prices

Source: World Economic Forum. International Monetary Fund

Gross Domestic ProductAnnual variations, constant prices

-8

-6

-4

-2

0

2

4

6

8

10

12

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Estados Unidos

México

USA

Mexico

Source: World Economic Forum, International Monetary Fund

USA

Mexico

3

GDP per capita2005 adjusted purchase order dollars

Despite great progress in strengthening macroeconomicfundamentals, Mexico continues to face significant challenges interms of economic growth.

Four European

Spain

Greece

Ireland

Portugal

East Asia

South Korea

Hong Kong

Malaysia

Singapore

Thailand

Taiwan

China

Mexico

Latin America exc. Mexico

Argentina Guatemala

Bolivia Nicaragua

Brasil Panama

Chile Paraguay

Colombia Peru

Costa Rica Uruguay

Ecuador Venezuela

El SalvadorNote: Regions were calculated using population weighted average.Source: Penn World Table 8.0 for up to 2012 data. For 2013, estimates based on information by World Economic Outlook, april 2014, IMF.

4

Productivity in Mexico decreased 0.7 percentannually in the past three decades.

Credit is scarce to business, expensive and notvery progressive.

Insufficient and expensive energy productionin Mexico decreased global competition in themanufacturing sector.

Backwardness in the regulation of economiccompetition by allowing monopolisticpractices.

Human capital with limited capabilities by loweducational performance.

Economic growth in Mexico over the last 30 years was only2.4 percent per year; derived from structural problems in theeconomy.

MexicoPerformance

belowpotential

5

Total Factor ProductivityPeriod average annual % variation

The main factor behind the performance of the Mexicaneconomy is the low productivity growth.

Four European

Spain

Greece

Ireland

Portugal

East Asia

South Korea

Hong Kong

Malaysia

Singapore

Thailand

Taiwan

China

Mexico

Latin America exc. Mexico

Argentina Guatemala

Bolivia Panama

Brasil Paraguay

Chile Peru

Colombia Uruguay

Costa Rica Venezuela

Ecuador

United States of America

Note: Regions were estimated as the population weighted average.Source: Penn World Table 8.0.

6

Reforms in Action

The magnitude of the challenges we faced required atransforming impulse, which culminated with 11 structuralreforms.

1

2

3

4

Energy Reform

Economic CompetitionReform

Financial Reform

Tax Reform

5

6

Educational Reform

Telecommunications Reform

7

8

9

10

Labour Reform

National Code of Criminal Procedures

New Protection Law (Amparo)

Political-Electoral Reform

11 Reform on Transparency

8

Outlook for the future

Strength of the Macroeconomic Framework

Growth withStability

1

Fiscal Discipline

3

Well-capitalized financial

system, with more supply of

credits

5

External accounts at low and financeable

levels

2

Monetary policy focused

on price stability

4

Regime of flexible

exchange rate

6

International Reserves at

Record Highs

10

Gross Domestic ProductAnnual variation

Source: SHCP.

The Reforms will increase the potential of the mexican economy to about3.5%, where inertial level, an increase of 5.3% growth by 2018.

4.7%

4.9%5.2%

5.3%

Telecommunications Energy Tax Financial Inertial

11

• For Mexico, the Finance Ministry expects growth of 2.7% of GDP by 2014.

• - Other forecasts (2014): OECD, 3.4%, IMF, 2.4%; BM, 2.3%, BANXICO, 2.0-2.8%, Banamex, 3.0%, Bancomer, 2.5%; Survey BANXICO, 2.47%.

• In August 2014, the Global Indicator of Economic Activity (IGAE inSpanish) registered growth of 1.3% compared to August 2013.

• In January-June Industrial Activity is 1.3% higher than that recorded in thesame period of 2013.

• In August 2014, a monthly increase recorded in Gross Fixed Investment of0.37% vs. July. It also registered 4.3% growth compared to August 2013.

• At the end of July 2014 the number of workers affiliated to IMSS stood at16,965,972 people (record high) and recorded an annual increase of 3.7%(603.240 new jobs).

• During January-June 2014, the personnel employed in the manufacturingsector increased 2.0% compared to the same period in 2013.

• In 2013, 38.3 billion of Foreign Direct Investment were recorded. Thesecond quarter of 2014 FDI was 9700 md.

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Industrial Policy

• Metal mechanical

• Textile and leather-dress-shoes

• Wood and Furniture

• Steel

• Food and Drink

• Automotive and car parts

• Aerospace

• Electrical

• Electronic

• Chemical

• Biotechnology

• Pharmacist

• IT

• Creative Industries

• Medical equipment

Mature Dynamic Emerging

Boost productivityIncrease

competitivenessAttract and encourage

emerging sectors

Sector Strategy

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Transversal Strategy

Human Capital

Innoación

Supplier Development

Regional Clusters

Innovation• Linking the productive sector with academia and

researchers

Guidelines

• Proactive and directed

• Conjunction with industry

• Resource Security

• Tracking results

Guidelines

• Consolidation of existing or in training clusters

Guidelines

15

17

Transversal Strategy

1717

Mature Dynamic Emerging

Human Capital

SupplierDevelopment

RegionalClusters

Innovation

Sector Strategies

Tran

sve

rsal

Str

ate

gie

s

• Incorporation of suppliers value chains through leading companies

• Increased value added production

• Increase the safety and capacity of suppliers to sell at top level producers

• Create a baseline of suppliers

• Bonding with the productive sector

• Link with dynamic sectors

• Create manufacturing regions with definite vocation and uniform standards

• Automotive: NL, Guanajuato, Chihuahua, EdoMex, Ags. and Pue

• Aeronautical: BCN, Chih, QC, NL and Son.

• Electronics: BCN, Jal. and Chih.

• Electrical: NL, QC. and Chih.

• Program intersectoral

linkages

• Joint development projects with high coverage capacity

• Support for industrial restructuring and investments in physical, human and technological capital

• Training center networks development and innovation of high level.

• Development of human capital formation senior

• National initiative to promote the Digital Market.

Industrial PolicyChart

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