Notes from Mexico conference

I attended part of the Mexican Housing Day here in New York this morning, mostly because the first two presenters would give background on the macroeconomic situation of the country. The first presenter was Finance Minister Agustin Carstens who gave a very good overview. Here are some notes I sent to my PMs.

Carstens first highlighted some negatives before illustrating reasons for optimism.


The Bad News:

- There has been a distinct downward revision in growth expectations after the Lehman collapse. - IMF forecasts shrinking trade levels for the first time in Mexico.
- Export growth collapses from 9% growth in Aug 2007 to -9% contraction in Dec 2008 – a severe downturn.
- Commodity prices are weak bringing down earnings.

The Good News:
- The downward growth revision in Mexico and other EM has not been as severe as in developed economies.
- The banking system is healthy and lending in Mexico is still expanding (although at a slower pace than over the past few years)
- Despite weak commodity prices, public finances remain strong: the budget is nearly balanced
- Debt as a % of GDP is decreasing
- Mexico has done a lot of work to shift its debt profile towards a longer horizon
- The good public finances have allowed Mexico to be proactive and, unlike in other crises, use countercyclic fiscal policy. These policies, although not as large as in the US, are commensurate with the stimuli other countries have enacted and he estimates the impact on GDP to be about 1 percentage point
- Inflation is under control and continues to come down, leaving room for easier monetary policy.


To me the most important points to me seemed to be that

a) the government this time is much better positioned to deal with a downturn than in other crises and has already demonstrated the will and the power to implement fiscal stimulus through the enactment of various programs.

b) The banking sector is not as vulnerable than in the US or Europe and continues to lend so we’re not seeing the same choking effect on companies via a freezing of credit markets.

All in all a pretty favorable assessment corroborating my view even though we would have to look into details to determine how much better Mexico is positioned than other countries.

I loved, btw, that someone else at the conference highlighted (highlit?) that once of the big advantages that Mexico has is that it is no stranger to crises, haha.