Economic: Slight Margin for Pemex Business Plan
Petróleos Mexicanos (Pemex) released its preliminary results for the third quarter of 2016, which show that its losses were not quite as pronounced as they had been in previous quarters, but also confirm considerable reductions in production and capital expenditures.
Of particular concern is the extent to which cutbacks in capex and maintenance investments have led to unscheduled production stoppages and reduced output at Mexico’s six oil refineries, which help to explain the latest reduction in Pemex’s sales.
It also reveals a marked reduction in the company’s tax payments that come primarily in response to the Ministry of Finance’s decision to authorize Petróleos Mexicanos to raise the limit on the amount of the profit-sharing duty it is allowed to deduct. The report also reflected the government’s injection of funds to cover the company’s pension commitments, and a drop in cost of sales.
Other positive aspects include an almost 50 billion peso reduction in the company’s quarterly net loss and a significant reduction in accounts payable to suppliers.
But despite all the efforts at cost cutting, as well as the boost that came from a lower tax bill, Petróleos Mexicanos continues to take on more debt, and the company’s net worth continues to deteriorate.
In this week’s Outlook section we analyze Pemex’s financial and operating results for the third quarter. Next week we will turn our attention to the company’s 2016-2021 business plan, which it unveiled on November 3.
In other economic news last week, the national statistics office (lnegi) released its preliminary estimate of GDP growth for the third quarter of 2016, which showed that based on seasonally adjusted data, the Mexican economy grew 1.9% compared to the same quarter a year earlier.
This latest result compares unfavorably against the pace of expansion recorded for the same quarter of both 2015 (2.6%) and 2014 (2.3%). The report also showed that the industrial sector continues to act as a drag on economic activity even as services sustained their expansion.
On an accumulated basis through the first nine months of 2016, the economy grew at an average rate of 1.9%, which is identical to the rate GEA has been forecasting since the beginning of the year for 2016. According to Banco de México’s latest survey of private sector economists, the market expects the economy to grow slightly more in 2016 than we anticipate: 2.07% on average.
The national statistics institute’s Business Confidence Index (or ICE for its Spanish language acronym) for October showed yet another erosion of sentiment in all three components as even readings among manufacturers broke sharply back into pessimistic ranges.
The mood among producers in the manufacturing and construction sectors grew especially more somber in terms of how they expect the Mexican economy over the next 12 months, and those in the commercial and construction sectors indicated a pronounced reticence about investing in their businesses at the present time.
On a related note, the index of gross fixed investment fell 0.8% in August compared to a year earlier. The latest decline was largely the result of a 3.0% drop in construction investment owing to a 4.0% decrease in the non housing component at the same time as housing related investment stumbled 0.9%.
Expenditures for machinery and equipment were 1.6% higher thanks to increases of 4.5% in purchases of domestically produced machinery and equipment and 0.3% in expenditures for machinery and equipment of foreign origin.
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