2011 Mexico's economic outlook

As natural on this period of the year, it is important to take a peek to the economic forecasts for the next year. I will analyze it considering three macroeconomic variables: GDP, inflation and exchange rate.

1.       GDP: as I mentioned on my note “Mexico’s GDP forecasts: threats and opportunities, wishes and realities” (http://beammx.blogspot.com/2010/11/mexicos-gdp-forecasts-threats-and.html), perspectives for the next year were between 3.5% and 3.9% in November. This forecast, lower than the results for 2010, is very influenced by the forecasts of USA’s economy. Since I published that note, the result for America’s economy on the third quarter of the year has exceeded expectations, and that may bring an increase on Mexico’s projections (private analysts consulted by Mexico’s Central Bank, BANXICO, increased on December their estimate to 3.59%), although there have been other voices, more conservative (a researcher from Tecnológico de Monterrey estimates an increase of 2.5%, and Moody’s estimates it will be between 3% and 3.5%).

2.       Inflation: on November, this is 4.32% according to BANXICO (compared with November 2009). Although it has increased on the second semester due to changes on agricultural produces and on electricity, BANXICO and analysts’ perspectives are a decrease for inflation (BANXICO estimates it will be 3% +/-1% for 2011 3^rd quarter, and International Monetary Fund estimated it will be 3%). Although the private analysts consulted by BANXICO made a recent adjustment to increase it (from 3.77% to 3.82%), it generally seems that the weak domestic market (“Employment in Mexico: improvements, but still a long way to go”, http://beammx.blogspot.com/2010/11/employment-in-mexico-improvements-but.html) won’t put inflationary pressures to the national economy.

3.       Exchange rate: since February 2010, it has been practically all the time on the range of 12.30 to 13.00 pesos per dollar, and the perspectives are it will keep that way. This outlook represents stability, but may compromise exports competitiveness.

So far, the projections sounds encouraging: PIB projections have been slightly increased (with some warning voices), inflation appears to be less than this year (with some recent increases), and the exchange rate seems to be relatively stable. It looks like a positive scenario, but not extremely optimistic. There are several world issues that must be closely followed since they may have a significant impact on these indicators:

·         The magnitude of America and some European countries governments’ debt.

·         The risk of “overheating” of some emerging economies, as China and Brazil.

·         Different governments decisions regarding their currencies in order to stimulate their international trade.

Plan over positive scenarios (if you are too conservative, other will take the opportunities that will arise), but let’s have clear that the country won’t recover 100% in all its sectors during 2011, and there are different economic issues showing a fragile world, so it will be convenient to be prudent and continuously monitor the variables mentioned above to timely identify possible changes in trends.

Labor productivity in Mexico

A lot has been said about the need for a labor reform in Mexico to eliminate structural aspects that has a negative impact on the country’s competitiveness.

Undoubtedly, the legal frame has its effect on competitiveness, as the World Economic Forum’s Global Competitiveness Report 2010-2011 states (“Labor market: the worst weakness for Mexico in terms of productivity”, http://beammx.blogspot.com/2010/10/labor-market-worst-weakness-for-mexico.html).

However, labor market reality is a lot wider and more complex than that. For instance, a great driving force for the recent economic growth has been the manufacturing exports to the United States (automotive sector, fridges, telephone sets), that shows world class skills and expertise. Besides, an unfavorable reality as the low cost of labor, turns into a competitive advantage for attracting investments. According to ProMexico (government office dedicated to the commercial promotion and investment attraction), labor costs in Mexico and China are very similar since 2008 (due to a recent increase of salaries in China, and unfortunately a decrease in Mexico).

These are the advantages, but, which are the factors that reduce competitiveness?:

·         Low quality on education: Mexico is the worst OECD country according to the Program for International Student Assessment (PISA,2006), that evaluates 15-year-olds on 3 areas: science, reading and mathematics. Besides, on World Economic Forum’s Global Competitiveness Report 2010-2011, Mexico is ranked on number 120 out of 139 on quality of the educational system and 128 in the quality of math and science education.

·         Labor regulation: as I mentioned, it do is a factor that has a negative impact on the flexibility for hiring and firing practices, and flexibility for wage determination. There are no perspectives of a short-term reform.

·         Motivation: according to IMSS, at least 4.5 million workers between 20 and 40 years have some kind of depression, created by professional problems, and that reduces their productivity index in 40% (Published by CNN Expansión, September 17^th 2010).

We need to build and keep developing business around these constraints. Decide which actions are the best to improve productivity based on your organization’s particular circumstances and industry. One hint: just don’t manage based on best-sellers.

Virtual Mexico: profile and characteristics

According to different analyses, there are between 27 and 30 million Mexicans, 6 years and older, that use internet for personal and work reasons. This number has been growing at an 18% annual rate, although it had a little deceleration the last year due to the economic crisis.

Source	Internet users
SCT, Yearbook 2008	23.26 millions
Study about availability and use of information technologies at homes 2009, INEGI	27.21 millions older than 6 years
Global Information Technology Report 2009-2010 (with data of 2008), World Economic Forum	21.71 millions
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	30.24 millions from 12 to 70 years
Statement of Microsoft’s Public Sector Manager, October 2010	Between 28 and 30 Millions
AMPICI, 2009	30.6 millions older than 6 years

There are different estimates about how much time does people surf on the internet (it goes from 11 to 23 hours); but one of the studies shows that Mexican surfers dedicate more time to this activity than to watch TV or listen to radio.

Now that we know the size of the universe and the level of activity, let’s understand the characteristics based on two dimensions: age and socioeconomic level.

Approximately, 75% of Mexican internet users are under 35 years; within this group, those between 12 and 18 are the biggest subgroup. If Mexico has still a young population, the internet population is even younger.

Source	Data
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	12 a 18 years: 35% 19 a 25 years: 26% 26 a 32 years: 15%
Study about availability and use of information technologies at homes 2009, INEGI	6 a 11 years: 13% 12 a 17 years: 28.3% 18 a 24 years: 20.7% 25 a 34 years: 16%

Now, analyzing the socioeconomic perspective, 37% of internet users belong to the highest levels (A/B/C+), meanwhile between the 15% and 16% are D-, the lowest level. Definitely, a very different reality compared with the country’s general economic distribution.

Source	Data
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	A-B-C+:37% (59% penetration) C: 22% (40% penetration) D+: 25% (23% penetration) D-: 16% (21% penetration)
AMIPCI, 2009	A-B-C+: 37% C: 19% D+: 29% D-: 15%

These variables let us understand the kind of audience your product or service will be exposed to if you offer it on the internet and are focused on the Mexican market. However, the Mexican internet user still makes very few electronic transactions. There is an estimate that between 7% and 12% of internet users make purchases or payments. These operations are mainly focused on airplane tickets, computers and its accessories.

This number is growing, as well as the confidence regarding the use of electronic transactions; but still, these are a very low number compared with the rest of the commercial activity.

In businesses, there is also a low use of internet for their operations. According to the World Economic Forum’s Global Information Technology Report 2009-2010, Mexico is on number 78 out of 133 countries regarding the extent of internet use for business activities.

This is the virtual Mexico that you need to know in order to align your business and commercial actions for serving in the most effective way this parallel country.