Jos Luis Romero Hicks

1
Berne Union Annual General Meeting Short Term
Committee
Mexico Macroeconomic Overview

• José Luis Romero Hicks
• September 28-October 4th, 2003

2
The Mexican Economy

• The Mexican economy has solid macroeconomic
  fundamentals.
• Prudent and flexible economic policies allowed
  Mexico to face an unfavorable external
  environment, maintaining economic stability.

3
Global Economic Activity decelerated and remains
on a decade low dynamism
GDP Annual Rates of Growth

Source IMF, WEO, Sept., 2003
4
World Economic Environment

• An incipient, not yet generalized, recovery
• Output growth based on labor productivity gains,
  not in employment generation (Jobless recovery)
• Consumer expenditures sustained through growing
  household indebtedness
• Declining prices of final goods and services
  (except energy prices)
• High idle capacity levels, mainly on
  manufactures.
• limited opportunities for profitable investment

5
THE MEXICAN ECONOMY
6
Mexicos position in the Global Economy, 2002
Ranks 10th in GDP
Billion dollars
Billion dollars
Worlds 8th exporter
Source WTO, IMF
7
Mexicos position in the Global Economy, 2002
(Cont.)

• First Latin American Exporter
• Mmdd
• Mexico 160.7 46
• Brazil 60.4 17
• Rest of Latin America 130.0 37

Mexico 160.7 billion dlls. (46)
Rest of LatAm 130 billion dlls. (37)
Brazil 60.4 billion dlls. (17)
8
EXPORTS EVOLUTION
Total exports (billion dollars)

• Between 1990 and 2002 total exports multiplied by
  four
• From 40 to 160 billion dollars

164.0
162.4
160.7
2003e/
UDM
2002
2000
1998
1996
1994
1992
1988
1986
1990

• Manufactures increased their share from 68 to
  88
• Annual average rate of growth15

1990
2002
Others 32
Others 12
Manufactures 68
Manufactures 88
UDM cumulative figure from august 2002 -july
2003 Source Banco de México
9
SOUND MACROECONOMIC FUNDAMENTALS

• Current account deficit has remained below 3.5
  of GDP.
• Widely financed with Foreign Direct Investment
  flows.
• Public Sector Economic Balance on a Cash Basis
  stands well below 3.0 of GDP (Maastricht target).

25,334
/ Fiscal Balance figure in 2002 excludes
resources for Banrural liquidation that
accounts for 0.77 of GDP
Source Banco de México
10
SOUND FUNDAMENTALS (Cont.)
Mexicos Total Extenal Debt as of GDP

• Prudent external debt management and better
  external indebtedness terms and conditions
  allowed Mexico to substantially reduce both
  external debt credit outstanding balance and
  interest payments in terms of GDP

External Debt Interest Payments as of GDP
25,334
Source Banco de México
11
SOUND FUNDAMENTALS (Cont.)
INFLATION, 2001-2003

• Single digit inflation has become an standard.
• Since June 2002 has remained within the Central
  Banks target band (3.0 /- 1.0)
• Low inflation and large capital inflows have
  rendered a sharp interest rate reduction.

INTEREST RATES, 2001-2003
Source Banco de México
12
SOUND FUNDAMENTALS (Cont.)

FOREIGN DIRECT INVESTMENT FLOWS

• In recent years Mexican economy has been the
  third FDI flows recipient among emerging
  economies, only behind China and Brazil.
• International reserves at record high level.

25,334
NET INTERNATIONAL RESERVES
25,334
1/ Last 12 months cumulative flow Source Banco
de México
13
SOUND FUNDAMENTALS (Cont.)
COUNTRY RISK (EMBI), 1998-2003

• Country risk perception has substantially
  decreased from almost 1,000 basis points in 1998
  to a record low of 195 basis points in September
  25, 2003
• Stable external conditions and a favorable
  investors perception about Mexican future has
  rendered an stable exchange rate.

EXCHANGE RATE, 1999-2003
14
ECONOMIC ACTIVITY
USA AND MEXICOS GDP EVOLUTION

• Mexicos economic activity is closely correlated
  with USA economy, and responds within a 3 to 6
  months lag
• Thus, slow dynamism in the USA economy has been
  reflected on the Mexican economy.
• However, Mexicos GDP has grown for five
  consecutive quarters and it is expected that
  economic activity will accelerate in the next 15
  months.

GDP EVOLUTION AND PERSPECTIVES
15
PERSPECTIVES
16
Global Economy

• USA economic recovery seems to be on track, and
  for 2004 it is expected that economic growth
  could exceed 3.5.
• The greater economic activity in the US should
  lead to a gradual recovery in the rest of the
  world, mainly in Japan, the European Union and
  Mexico.

17
MEXICOS PERSPECTIVES

• Factors determining Mexican economy expected
  dynamism
• Solid economic fundamentals
• A more favorable international economic
  environment
• USA industrial sector recovery
• Favorable investors perception of Mexican
  economys future
• Those factors could be enhanced with the
  implementation of structural reforms Fiscal,
  energy and labor.

18
MAIN ECONOMIC INDICATORS, 2003-2004

• 2003 2004
• GDP growth () 1/ 1.5 3.5
• Public balance/GDP ()2/ -0.5 -0.5
• Inflation () 1/ 4.3 3.4
• Current Account/GDP ()1/ -2.2 -2.7
• Exports (Billion dollars)2/ 164.0 173.1
• Annual rate of growth () 2/ 2.0 4.6

1/ Source IMF, WEO, Sept., 2003 2/ Source
Dirección de Análisis Económico, Bancomext