EVEN MEXICO’S 19TH CENTURY DICTATOR FORESAW TODAY’S GDP LETDOWN
Poor Mexico. So far from growth targets, so close to the United States. The variation on the line attributed to former Mexican president Porfirio Diaz, who at the turn of the 20th century pushed through changes designed to boost growth, comes to mind today as Mexico’s government cut its projected expansion for the second time this year. Even as consumers continue to spend, lower oil prices and stagnant export demand from north of the border will put a ceiling on the country’s economy.
The government on Monday cut its growth forecast to 2 per cent to 2.6 per cent, down from an estimate of as much as 4.3 per cent last August. That is a far cry from what current President Enrique Pena Nieto promised when he told investors in New York two years ago that Mexico’s energy-industry opening would boost growth above 5 per cent by 2017. Yet after a disappointing first half of this year and the first quarter-on-quarter contraction since 2013, economists increasingly see an expansion of just 2 per cent for 2016 as a bit of a stretch.
One particular challenge is the year-anda-half decline in exports, most of which go to the US. Exports to the US peaked at $318 billion in 2014 and are on pace for a second annual decline — a back to back drop in exports would be the first since the North American Free Trade Agreement took effect in 1994. Although being a top supplier for the world’s biggest economy mostly gives Mexico a tailwind, it’s precisely the close relationship with the US that’s hurting the nation’s manufacturing exports at this time, according to Jonathan Heath, an economist at the Mexican Institute of Financial Executives.
“Bottom line, we are exporting less,” Heath said. “The reason for this is we are much more integrated. Our exports have many more US components, and the US has many more Mexican components. The dollar’s strengthening has impeded the US from exporting more, and as a consequence the US is demanding fewer components from Mexico.” The aforementioned president Diaz, who seized power in a coup in 1876, led a push for modernisation that attracted foreign direct investment but benefited a small group, eventually leading to a revolution. Historians attribute to him the remark “Poor Mexico. So far from God, so close to the United States.” ingapore plans to reduce the role of cash and checks in its economy by encouraging banks to switch to digital payments, according to the head of the country’s central bank. “For consumers, the use of cash for daily payments is high,” Ravi Menon, managing director of the Monetary Authority of Singapore, said at a financial technology conference on Friday. “For businesses, the use of checks is relatively high too.”
Menon said cash in circulation in Singapore is the equivalent of 8.8 per cent of gross domestic product, compared to just over 2 per cent in Sweden. An average of 12.7 checks were written per person in Singapore in 2014, compared with practically none in Sweden, he added. This costs Singapore about S$2 billion ($1.5 billion) per year, mostly for storage and processing, which Menon described as a “non-trivial” amount.
Singapore is aiming to be a hub for the financial technology industry in Asia, in an attempt to bolster its economy, create jobs and cement its position as a regional banking centre.
Menon said the MAS is asking the country’s banks to pass on to their customers the full cost of paper-intensive services, such as the processing of checks, to encourage them to switch to digital payments. The MAS also wants to see a majority of those transactions made using cellphones, or national ID or other secure numbers, rather than bank account numbers, over the next year, Menon said.
Singapore, along with Finland, the US, Sweden and the UK, are the economies that are most ready to use digital payments, based on the high use of mobile phones and banking services, according to a Citigroup Inc report published in June. Apple Inc introduced its mobile payment service Apple Pay in Singapore in April.
Samsung Electronics Co followed with its own service two months later.
While Mexicans aren’t in revolt in 2016, Pena Nieto’s approval rating has plunged to 23 per cent from 30 per cent in a Reforma newspaper poll published this month. That is the lowest level since the 1990s as public dissatisfaction with the economy and the government’s response to corruption rises.
At a time when the nation’s low debt load relative to other emerging markets might argue for increasing spending to get the economy going, Finance Minister Luis Videgaray is sticking to his pledge to keep the budget balanced. Fiscal stimulus is also not in the cards as Mexico’s central bank has raised its key interest rate to a three-year high, in part to protect the peso’s stability. Mexico’s fortunes are once again tied to those of the US
Pedro Uriz, a strategist at BBVA Bancomer SA, summed it up in a note to clients: “Given the lack of fiscal scope to stimulate the economy in order for Mexico to grow at a faster pace, it will require an acceleration of the US economy and stronger investment locally.”
SThe variation on the line attributed to former Mexican president Porfirio Diaz, who at the turn of the 20th century pushed through changes designed to boost growth, comes to mind today as Mexico’s government cut its projected expansion for the second time Singapore, along with Finland, the US, Sweden and the UK, are the economies that are most ready to use digital payments, based on the high use of mobile phones and banking services