Economics: Mexico Shares Some China Woes
One of the risk factors that endures as a threat to the performance of the Mexican economy over the medium term is the health of the Chinese economy, especially its financial markets. Concern has mounted in the past few months in response to official data pointing to a slowing of economic activity, an acceleration of both public spending and real-estate investment, as well as considerable expansion of credit flows to businesses that observers find especially troubling.
A steeper deceleration of economic activity than currently anticipated would again depress international demand for commodities and emerge as a new threat to the gradual recovery of global oil prices, with broad and direct effects on Mexico.
A slowing of the world’s second-largest economy might also cause the yuan to become even more undervalued, thereby incentivizing Chinese exports to the United States and possibly displacing Mexican shipments of goods to its northern neighbor, something that has yet to materialize at a time when the peso has become greatly depreciated.
At the same time, Chinese economic growth has been funded with more debt and through increased investment in both state-owned firms and mortgage lenders and real estate developers. These developments are unsustainable over the long term and have led to a swelling of the non-performing loan portfolio in China’s financial market, heightening global financial market uncertainty. As a result, this combination of factors has slowed investment flows into emerging economies.
In this week’s Outlook section, we delve deeper into the recent performance of the Chinese economy and the possible ramifications it may have on Mexico over the medium term.
In Mexican economic news last week, the authorities reported that manufacturing employment grew at a seasonally adjusted 2.7% in August above levels of a year earlier. While that expansion was slightly less pronounced than the 3.0% rise reported for August 2015, it marked an improvement over the previous two months: 2.2% in July of the current year and 2.3% in June.
Some branches related to the automotive sector started hiring at a faster pace, as in the case of computer equipment, for which payrolls expanded 5.8% in August, and transportation equipment, for which employment rose 4.1%.
Through the first eight months of 2016, these two branches have increased employment at full-year rates of 4.3% and 4.7%, respectively. In contrast, factories producing petroleum derivative products and textile-based apparel continued to implement layoffs.
Remunerations in the manufacturing sector grew at a seasonally adjusted rate of 2.2% in August, a significant increase compared to the mere 0.8% rise in wages and benefits reported for the same month a year earlier.
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