2019 ANNUAL REPORT
MORE THAN A BANK
For some time now, Mexico has been a significant magnet for capital investment and the development of vast industrial clusters, because of its strategic geographic location, human capital, long-term planning and relatively stable macroeconomic framework.
The states more deeply involved in this process are those that have seen the strongest rate of growth in recent years. This is crucial in a fast-changing world like our own. For example, last year was a landmark for the world’s trade dynamic, possibly the most important since China entered the World Trade Organization in 2001, because of the chilling effect that trade tensions between that country and the United States had on investment, economic activity and expectations. This was one of the factors that also affected Mexico’s growth in 2019. But it is also significant that Mexico saw a 7.8% increase in foreign direct investment as of the third quarter of 2019, compared to the same period of 2018. This advance was led by manufacturing, finance and retailing, which benefited from a dissipation of doubts about the negotiations toward a new North American Free Trade Agreement.
The recent ratification of the T-MEC by the US government inspired greater confidence in trade relations between Mexico, the United States and Canada in coming years. Although internationally speaking the road ahead looks rocky in economic, political and social terms, Mexico should be able to rise to the challenge and take advantage of opportunities in this new global overview.
Today the world is facing a dramatic paradigm shift, and we believe it is vital that we not only identify these changes, but act to meet them, promptly and strategically. The technological advances of what is called the Fourth Industrial Revolution has set off disruptive shocks in many industries and in daily interaction among people. This could become a challenge for banking, but also for most of the industries that make up Mexico’s GDP. At the same time, a massive demographic shift is taking place across the globe, with millennials (born between 1981 and 1996) and centennials (born from 1997 on) now making up 51% of the world’s population. This has altered political, social, and cultural systems, along with consumption patterns and customer experiences. We cannot overlook the resulting environmental and social changes, which represent a significant responsibility for all of us. Mexico must bet on a more strategic vision to face these paradigm changes and seize the opportunities thy generate. It is in this scenario that GFNorte maintains its firm commitment to Mexico, to continue serving as a strategic ally.
Within this strategic vision we have recognized and assimilated the weak performance of the Mexican economy in 2019, attributed primarily to: (1) the moderation typical of the first year of a new presidential administration, which affects both public and private investment; (2) a series of temporary shocks—including an interruption in fuel supply, some strikes in our country and abroad, a blockage of rail lines in Michoacán and the suspension of construction projects in Mexico City; and (3) trade uncertainty, which hit the manufacturing industry particularly hard in a context of rising tension between the United States and China, the renewed threat of tariffs on Mexican goods in the United States, and difficulties in getting T-MEC approved by congress.
For 2020, we estimate a growth of 0.8%, with more balanced risks. We believe the improvement over the past year will be supported by a number of factors, among them less uncertainty—particularly on the trade front, now that T-MEC has been ratified in the United States—which would bolster business confidence. We also believe the first phase of the federal infrastructure plan will help revive private investment. And the slowdown that generally occurs in the first year of a new administration will be behind us, which should be good news in terms of public infrastructure spending—including the start of construction of some key projects. We expect consumption to accelerate modestly (1.2% AaA), supported by higher wages—including a 20% hike in the minimum wage—controlled inflation, and the consolidation of some social programs as the main drivers. Finally, we believe monetary and fiscal policies will be less restrictive overall.