Economics: Congress’ Tinkering with the Budget

MEXICO - Report 26 Nov 2015 by Mauricio Gonzalez and Ernesto Cervera

As we analyzed in previous issues of Weekly Trends: Mexico Economy since October 26, the changes the Mexican Congress introduced to President Enrique Peña Nieto’s original 2016 Revenue Law propose an increase of 16.9 billion pesos. In contrast, lawmakers left the president’s public deficit proposal intact. The Friday before last (two days before a constitutionally stipulated November 15 deadline), the Chamber of Deputies passed the Federal Spending Budget (2016 FSB). Total spending is to reach 4.7 trillion pesos, and that same adjustment was made to the revenue bill; out of that total, 3.6 trillion pesos correspond to programmable spending, 4.6% lower in real terms than in the 2015 budget, and 1.1 trillion pesos to the non programmable component, 3.3% more than was earmarked for the current year.

The lower chamber made a number of adjustments to the administration’s budget proposal. It raised programmable spending (both current and investment) by 44.7 billion pesos while trimming the amount to be spent on financing costs by 11.1 billion pesos and shaving 16.7 billion pesos off other parts of the budget such as participaciones (the sharing of revenues that municipalities and states previously collected to fill their own coffers, but which the federal government took charge of collecting decades ago), and debts from previous fiscal years (Adefas). This week we take a close look at the 2016 FSB as it emerged from congressional deliberations.

In other economic news, the Mexican economy grew at a 12-month rate of 2.6% in the third quarter of 2015, which was stronger than either GEA (+2.4% e) or the median market consensus (+2.3% e) had anticipated.

The economy’s main driver was once again the commercial sector, whose 4.8% expansion year on year easily surpassed the 3.0% increase analysts had predicted. It also overshadowed the 3.7% expansion recorded for the same quarter a year earlier.

The combination of a significant increase in commercial activity between July and September and its increased weight in Mexico’s GDP also made the sector the economy’s top driver of growth during the third quarter.

One should keep in mind that household consumption firmed in recent months to its strongest levels of the past two years, a trend that has been apparent in the sales results recorded by Mexico’s retail industry association (Antad) and in strong sales of cars and light trucks.

Other indicators that tend to offer a preview of consumer patterns have in recent months favored an extension of this trend. The Consumer Confidence Index has recorded a steady firming of consumer sentiment dating back to November of 2014 and extending through October of this year. The commercial sector accounted between April and June for more than a third of total GDP growth: 0.80 of a percentage point of the 2.6 point expansion reported for GDP overall.

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