Economics: Public Finance Looking Vulnerable

MEXICO - Report 25 Aug 2016 by Mauricio Gonzalez and Ernesto Cervera

Over the course of 2016 the Ministry of Finance has exerted effective controls over public finance. As we analyzed in the June 27 issue of Weekly Trends: Mexico Economy, the government decided to lower spending for 2016 by 132.4 billion pesos, with austerity measures including the elimination of more than 11,000 federal government jobs. And in a departure from practices of recent years, in which officials promised spending cuts and then failed to implement them, so far in the current year they have fully met such adjustment targets, according to the revenue and spending data through June.

This is an especially important accomplishment given the extent of international uncertainty about the level of economic activity and the possibility that the Federal Reserve might raise interest rates as soon as November of this year. Moreover, there have been signs of a loss of momentum on the part of the internal economy, which has been sustained exclusively by consumption even as threats of greater inflation hang over the economy.

In this week’s Outlook section we analyze the evolution of public finance and the areas in which it is most vulnerable, at a time of heightened uncertainty in Mexico and internationally.
In other economic news, the national statistics institute, INEGI, reported that factory employment in Mexico turned in a weak performance in June following an extended period in which it had experienced a loss of growth momentum. But despite the slackened pace of hiring, remunerations continued to grow. The number of people employed in manufacturing enterprises grew at a seasonally adjusted, 12-month rate of 2.1% in June, a result that fell short of the 2.7% increase reported for May and considerably weaker than the 3.3% expansion recorded for June of 2015.

The deceleration seen in industrial GDP, and especially on the level of manufacturing, has been reflected in a significant slowing of hiring and an outright contraction in the most recent period. During the first quarter of 2016 manufacturing GDP grew at a 12-month rate of 1.9% seasonally adjusted, but shrank 0.2% during the second quarter.

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