Economics: No Foreseeable Lid on the Debt
Now that the lower chamber of Congress has approved next year’s revenue and spending budgets it is time to take a look at how the public debt and budget deficit are likely to evolve in the coming years. The risks may prove considerable at a time of depressed petroleum revenues and rising debt costs as interest rates are expected to trend higher, and international financial uncertainty to squeeze access to new financing. Hence, the careful monitoring of the debt has become a point of prime concern for Banco de México and the private sector.
Another troubling issue is the government’s inability to meet its objectives in terms of Public Sector Borrowing Requirements at the end of each year. The historical balance of public sector borrowing requirements has risen from 29.1% in 2007 to 46.9% in 2015, an average increase of close to 3 percentage points of GDP each year.
Since the 2009 crisis Mexico has sustained a primary deficit, which as of 2014 was the equivalent of more than 1% of GDP in 2014, and is projected to end 2015 at 1.3%. In this environment the government’s expectation that the deficit can be lowered to 0.5% of GDP looks like one that will be very hard to achieve.
In this week’s issue we analyze the viability of the Ministry of Finance’s projections for the lowering of public debt over the medium and long terms, something that is looking troublingly hard to achieve.
In other news, industrial production grew 1.7% in September, a result considerably weaker than a year earlier (3.9%), but one stronger than had been expected, and the best since March 2015, when industrial output grew 1.9%. Two factors fundamentally contributing to the slight rise compared to the previous five months were improved performances from both the manufacturing and construction sectors. Manufacturing expanded at a 12-month rate of 3.3% in September, a slight improvement over the 3.0% average of January-August. Factory output was supported by strong growth in textile related industries. For example, production of textile inputs grew 10.4% year on year, those of non-apparel textile products rose 9.2%, while the branch of apparel reported a 7.4% increase in sales.
Construction activity expanded a robust 4.0% in September, an improvement over the construction sector’s 3.6% average expansion between January and August. Among construction components, building, the sector’s weightiest segment at 67% of total construction activity, grew at a 12-month rate of 5.1% as opposed to the 4.6% average rate of expansion for the period of January through August of 2015. The latest report also marked an improvement over the 4.5% expansion of September 2014.
In contrast to the generally positive showing from manufacturing and construction industries, the mining sector once again failed to break out of its extended downtrend in September as production fell 5.1%, the sector’s 16th consecutive negative result. During the third quarter of 2015, the industrial sector grew 1.2%, a single basis point stronger than the 1.1% we at GEA estimated for the same period.
The National Association of Supermarkets and Department Stores (Antad) said sales at all the stores of affiliated retailers, including newer locations, were a real 10.4% higher in October compared to those recorded for the same month a year. Sales at comparable stores –those open at least one year— grew by a real 7.1%, the most favorable result since November 2011, when such sales grew a real 10.7%. These results reflect the extent to which internal consumption has firmed in recent months along with consumer expectations of acquiring durable goods.
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