domingo, 22 de febrero de 2015

When can a central bank stand against the markets?

What central bank can hope to fight off successfully a run against its currency? Maybe the Chinese central bank: the country's US$3.8 trillion in reserves gives it a fighting chance at beating off an attack. To put the number in perspective, that's more than three times Mexico's GDP. It's also a sixth of total world reserves.

While Chinese exporters would be happy with a weaker renminbi, Chinese companies and banks have borrowed an estimated US$1 trillion over the last five years, mostly dollar-denominated, short-term loans. They certainly aren't happy with a depreciating renminbi.

Mexico has run sizable capital account surpluses in recent years, which the peso's movements have reflected. In 2013, US$64 billion of capital flowed (net) into Mexico; in the first nine months of 2014, net capital inflows were US$40 billion. Capital flows are a different order of magnitude in China. In the fourth quarter of 2014, capital outflows from China were US$96 billion!

The same is true of the two countries' tourism position. Last year, Mexico posted a record US$6.6 billion surplus in the tourism account. In the fourth quarter of 2014, China ran a US$36.4 billion deficit in its tourism account.

jueves, 19 de febrero de 2015

Not only did Banco de Mexico reduce its growth forecast...

Yesterday, Mexico's central bank cut its projection for this year by half a percentage point, to 2.5% - 3.5%.

More telling was the concluding paragraph of the summary of the bank's quarterly analysis, which baldly stated that macroeconomic stability isn't enough to improve societal well-being. "Adequate implementation of structural reforms is indispensable" if Mexico is to be more competitive and productive and the domestic economy, a more important motor of growth.

The eye-opener was the Bank's ringing endorsement of the rule of law: "It is of the greatest importance to work on the institutional transformation of the country, in order to build a more solid rule of law and create greater judicial certainty for society." 

lunes, 2 de febrero de 2015

What's middle class?

Income isn't the only way to define "middle class". Education is another. Aspirations are as well. Last week's blog took a look at the evolution of the US middle class -- defined as a household earning between US$35,000 and US$100,000 a year.

I thought it would be interesting to see to which income decile a Mexican household with that income would fall. Here are the numbers for 2012, the most recent year available from INEGI.

Households earning US$32,037 a year were in the top 70% of the income distribution in Mexico. Household income of US$40,857 were in the top 80% while US$56,329 were in the top 90%. Household income for the top 10% averaged US$123,587.