business barometer survey - deloitte united states · 2020-04-03 · business barometer 26...

26July

2013

BusinessBarometerSurvey

The businesspulse survey

Introduction

The twenty-sixth edition of Business Barometer reveals falling perceptions among business executives with regard to thebusiness climate. In fact, all component measures declined against our 2013 first quarter survey. This shift in direction isimportant: opinions gathered agree that the business climate and the situation of businesses are less favorable than inprevious months. Perceptions of the direction of economic variables can explain this downtrend: the economic situation,investment climate, employment, availability of credit, security, industrial output, production capacity and profitability alltipped to the downside and contributed to the general fall off in business leaders’ general outlook for the business climate.

Another key variable is demand, which also dipped significantly contributing to the downward bias in perceptions of thebusiness climate. This result suggests that demand in the internal market has begun to slacken, though most businessescontinue to enjoy normal demand. In this regard, the results of this quarter’s survey stand in line with the generaldeceleration of the economy. Moreover, the business leaders surveyed appear to think that this trend will carry on in thenear future.

In other matters, business leaders expressed favorable opinions of financial and telecommunication legislation reforms,which they hope will serve to stimulate the economy. With respect to financial reform, access to credit, more creditoptions, greater capacity for investment and sales, and brisker competition were the components of this generally upbeatoutlook of the coming reform package; while lower communication costs and the broader range of products and servicespromised by the telecommunications reform underpinned the optimistic outlook of business leaders answering our survey.On the other hand, the fact that these reforms enjoy the approval of the business sector in this number of BusinessBarometer did not spill over to boost their somewhat guarded opinion of the business climate and situation.

A similar dynamic can be seen in the components of inflation and the exchange rate. Business leaders remain confidentthat these factors will continue to propitiate the economy, with the latter fluctuating around the 13-peso mark.Additionally, most business leaders agreed that prices will perform in line with Banco de Mexico projections. In light ofthese outlooks, it is clear that business leaders are generally happy with current monetary policy, though not necessarilyoptimistic about the performance of the macro-economy.

Business executives’ assessments of the performance of the government declined, specifically with regard to inflationcontrol, improving infrastructure, growing the economy and reducing unemployment. Taken together, the components justmentioned serve to summarize the economic performance of the country. As such, the slowing rate of growth propitiatesa generally less favorable view of the government´s performance. The sole government performance component ratedpositively by business leaders was the reinsertion of Mexico into the world, thought the uptick was modest at best. Thescore for government performance was the lowest seen since the end of 2010. The low mark, moreover, was stronglyinfluenced by sagging scores in economic variables.

This number of Business barometer shows that political discord carries increasing weight as a threat to the Mexicaneconomy. It should be stressed that agreements are fundamental for driving the reforms the country needs in order toenjoy stronger growth and development. This is borne out by the agreements reached in the early months of the PeñaNieto administration, which helped underpin confidence and garnered the approval of investors. This ability to reachaccords must continue for the good of Mexico’s economic growth and development.

Business Barometer 26 Introduction 3

4

75

40

13

8

18

121096

191917

10

26

35

69

77

71

74 75

71

5753

68 6669

73 73

6865

60

54

42

5756

49

4541

6361

56

44

7167

5957

35

59585554

36

64

605857

33

52514743

25

50

444140

13

68

625855

18

686662

58

16

65

61

55

13

61

58

52

11

70

6462

57

14

61

56

48

14

49

333027

20

17

21

65

272524

17

67

6258

51

32

Business Environment

Current situation compared with the one in previous year(Average scores in a 01-100 basis*).

Current SituationBusiness Barometer 26 reveals a steep drop off in perception scores of business leaders surveyed, especially with regard tothe components of the current business climate, which all fell off against our 2013 first quarter survey. The decline in the scorefor the perception of the economic situation, in fact, has wiped all of the gains made over recent years. A similar result camein for employment, the investment climate and availability of credit; while the retreat in the area of security was somewhat lesspronounced. Nonetheless, the positive trend launched near the end of 2011 has clearly stalled and in fact has reversed. In lightof these descending scores, the deterioration of the business climate is patent. Moreover, we can expect this quarter’s saggingnumbers to spill over into investment and job creation in the remainder of the year and into 2014. This outlook seemsespecially worrisome in light of the general retreat in economic and financial conditions world-wide.

* Figures were computed by weighing percentages of responses “better”, “the same” or “worse” by 1, 0.5 and 0

I

T1 T2T4T3T2T1T4T3T2T1T4T3T2T1T4T3T2T12012 2013201120092009 2009 2010

AverageAverage

AverageSecurity Employment Creditavailability

Investmentclimate

Economicsituation

Business Barometer 26 Business Enviroment 5

7472

66

60

7980

53

64

7976 78

88 87

79 79 80

72

56

62

78

73 76

81

86

7876

727068

56

7776

62

80

7573

67

7068

60

71

67

62

60

747170

66

60615857

49

55545250

43

666462

44

75737270

49

757271

68

46

72

70

67

47

83

787574

49

83

76

75

50

727068

49

75

68

67

47

747170

51

63

5856

42

5149

4543

Future situation within one year(Average scores in a 01-100 basis*)


FutureThe future situation is also undergoing a process of re-assessment among business leaders surveyed, with respondentsexpressing a less favorable outlook than that revealed in our 2013 first quarter survey. Even though scores in the measureoutperformed those for the current situation, one cannot ignore that there is a marked flattening out of expectations acrossthe board of components that make up the future outlook score. The security component underwent a second straightretreat, though, in terms of magnitude, retreats in the economic situation, investment climate and employment were morenotorious. Moreover, the latter variables appear to be the likely culprits of slowing economic growth in the near future.

T1 T2T4T3T2T1T4T3T2T1T4T3T2T1T4T3T2T12012 2013201120092009 2009 2010

AverageAverage

AverageSecurity Employment Creditavailability

Investmentclimate

Economicsituation

6

Current SituationThe context described is mirrored in the current situation of businesses, largely, because all component variables of thisindicator, with the exception of salaries, are trending down. The decrease in output, production capacity, profitability,prices and employment provide a synthesis of the slowing economy directly faced by businesses. While it may be goodthat salaries have withstood this situation, if things go on in this way much longer they will no doubt take a hit. It isimportant to note that the business climate described in this number of Business Barometer, characterized by saggingproduction growth in Mexico, is in line with perceptions of the situation of organizations.

67

71

77

75

71

65

62

78

81

65

6261

65

61

66

72 7374

75 75

6967

6361

75

72

7477 76

7473716968

64

61

5859

63646768

7273

636261

5452

727169

6463

73

70696865

62

716967

6059

6968

64

5655

676664

5655

7271696765

63

7271

6765

62

58

67656362

59

54

666463636158

65

62605957

51

57

50

46

4039

64

57

50

40

3736

52

46

36

3332

51

45

35

3130

48

54

6263

T2T1T4T3T2T1T4T3T2T1T4T3T2T1T4T3T2T12012 2013201120092009 2009 2010

AverageAverage

Prices Wages Production Productioncapacity

Profitability Employment Average

Current Company situation compared with the one in previous year(Average scores in a 0-100 scale basis)


Company SituationII

Business Barometer 26 Company Situation 7

14

56

30

48

29

23

9

12 13

37

40

4954

17

55

27

18

25

16

2326

20

2624

23

30

45

51

25 24

17 1713

22

14

2629

60

1514

19 18

41

51

54 5454

5759

36

6157

27

6058 59

52

17

31

Current company demand (percentage distribution of responses)

Part of this can be attributed to the significant drop off of demand faced by companies. Fully 31% of business leadersreported sagging demand for products and services. This fall off came in both normal and high demand categories. Whilemost businesses report normal demand, those reporting lower demand increased nearly to first quarter 2010 levels, whenthe aftershocks of the 2009 crises were still afoot.


Normal

AverageAverage

Low High

8

FutureWith respect to the future situation, a scenario similar to the current situation prevails, except in regard to prices andsalaries. Like the assessment of the current situation, output, production capacity, jobs and profitability continue to trenddownward; and taken together constitute a significant impediment to short- and medium-term growth. In contrast tothe current situation of salaries, the future outlook is calling for decline, while prices are expected to rise. Overall, theevaluation of the current and future situations by business leaders reveals falling expectations for the climate in whichtheir respective businesses operate, largely owing to the drop off in demand.

79

69 69

86

83 83

8182

7273

63

69 69

66

62 62

77 7777

72

68

75

737170

63

70 70

7879 79

72

69

67

82

75 75 75747372

68

80

76 7676

747372

67

78

7473 73 73

69 6969

68 68

80 80

72

79 7978

74737271

66

79 79

74 74 7474 7474

71

68 68

82

78 787878

75 7576 76

7271 71

72 72 7272

69 69

67 67

77 77

75

61

67

61

68

5960

66

61

55

50

76

72

Future situation (within a year) of the companies with regard to the date of the survey(Average scores in the 0-100 scale*)



Prices Wages Production Productioncapacity

Profitability Employment Average

AverageAverage

Business Barometer 26 Inflation and Exchange Rate 9

43%

50%

1%5%

1%

Less than 3.5 %

Between 3.5 and 4%

Between 4 and 5%

Between 5 and 6%

Between 6 and 7%

More than 7%

InflationThe outlook for inflation remains within the Banco de Mexico target range, though with a bias toward the high end of 4.0%.Fully 50% of those surveyed put inflation at in the 3.5-4.0% range, which suggests both confidence in current monetary policyand acknowledgment of recent price hikes in food and energy. This is borne out by the 43% of business leaders who putinflation in the 4.0-4.5% range, which of course lies above the Banco de Mexico target range. While expectations of inflationcoming in above the target range have increased, most business leaders continue to express confidence in monetary policyand relatively few think inflation will top 5.0%

The outlook for 2014 year-end inflation mirrors that for the current year: 49% of those surveyed peg inflation within the3.5-4.0% range, while 34% of respondents have it in the 4.0-5-0% range. In general terms, there appears to beconfidence in government inflation control measures: in fact, 10% of respondent see inflation coming in below 3.5%. Wemay well conclude that most business leaders think inflation pressures are temporary and not rooted in the structure ofprices in Mexico.

Inflation and Exchange Rate

Inflation by year-end 2013

34%

0%

49%

10%1%6%

Inflation by year-end 2014

III

Less than 3.5 %

Between 3.5 and 4%

Between 4 and 5%

Between 5 and 6%

Between 6 and 7%

More than 7%

10

Fully 60% of business leader surveyed peg the peso below 13.00 per USD, and this is the largest segment to do so sincethe end of 2011, suggesting that confidence in the peso remains strong despite international volatility. Nonetheless, onemust not ignore that the this quarter’s survey saw the gap between those expecting the peso to top 13.00 per USDnarrow by 6.0%., a situation that reversed the trend observed in recent months.

T2T1T4T3T2T1T4T3T2T1T4T3T2T1T4T3T2T12012 201320112009 2010

7

93 89 92

82

11 8

18

72

29

71

19

92

10

90

61

39

52

66 63

60

40

3437

19

81

15

52

85

8

37

4848

28

63

81

Exchange rateWhile the exchange rate is affected by growing economic and financial volatility in recent months, the results of thisquarter’s survey show that most business leaders have confidence that the current situation shall endure. Fully 51%of those surveyed believe that the 12M exchange rate will fall between 12.50 and 13.00, while 34% foresee a rate ofbetween 13.00 and 13.50. Though more business leaders perceive greater pressure on the peso, we can safely assertthat most business leaders do not live under undue fear of devaluation.

34%

0%0%

0%

51%

8%6%

Exchange rate within a year(at the time of the survey)

Exchange rate trend over the next 12 months (percentage of responses)

Less than 12.50

Between 12.51 - 13.00

Between 13.01 - 13.50

Between 13.51 - 14.00

Between 14.01 - 14.50zs

More than 15.00

Between 14.51 - 15.00

More than $13.00 per dolar To $13.00 per dolar

Business Barometer 26 Threats to Economic Activity 11

32

24

64

37

48

70

53

38

33

49

57

52

57 57

5250

3941

33 35

49

4239

37

32

24

14

4 42 2

29

18

31

33

26

52

3230

32

29

25

2

36

23

1

37

11

1

27

18

21

18

31

23

16

21

21

27

17

31

20

16

52

27

19

32

31

22

11

3

26

21

12

2

24

15

63

18

742

22

7

3

Threats to the Mexican economy within the incoming months (percentage of responses)

Threats to EconomicActivity

ThreatsBusiness Barometer 26 shows that the sole variable to increase in terms of the threat it poses to the economy is politicaldiscord. The hike of 10 percentage points in this indicator puts it in third place, with deceleration of the US economy andsecurity still in the top spots, though the latter underwent some easing in terms of the threat it poses. Meanwhile, the threatsposed by oil prices and inflation did not carry any significant weight in this measure. As such, it would seem that the politicalclimate has taken on renewed concern in the minds of business leaders, which reverses the trend set when early in the PeñaNieto administration some degree of political consensus was achieved. Even as the US has shown some signs of reactivation,the perception of US economic deceleration as the chief threat to the Mexican economy did not otherwise increase.

IV


Politicaldisagreements

Us economicslowdown

Oil prices Insecurity Inflation

AverageAverage

12

Opinions on government performance (average scores in a 0-100 scale*)

6364

83

42

47

50

5657

66

53

50

464441

36

3331

62

52

3332

27

35

39

46

26

62

48

353230

3739

44

22

76

34

37

41

44

27

78

19

35

3839

51

29

16

20

27 27

41

80

3941

46

50

82

23

48

54 54

30 30

43 45

868687

50

55

5149 4948

40

23

63 63

72

62

33

42

48

58

65

46

282624

31

3538

69

38

2120

2325

30

66

38

26

24

16

2931

34

1918

15

20

23 23

25

22

87

64 65

88

59

55

5052

47

3133

26

5553

49

43

292829

47

31

62

71

61

8891

36 36

3235

68

64

56

51

32 32

3533

30

46

50

555659

79

60

403938

32

2625


Inflation control

Economygrowth

Unemploymentreduction

AverageRepositioningMexico in the world

Povertyreduction

Educationimprovement

Infraestructureimprovement/increase

Securityimprovement

AverageAverage

Government’s performanceThe assessment of business leaders regarding the performance of government moved downward, largely because ofthe decline in the components of inflation control, improving infrastructure, growing the economy and reducingjoblessness. Taken together, these variables summarize the economic performance of the country, as slower economicgrowth tends to fuel less favorable opinions of government performance in this area. Similarly, government efforts toreduce poverty, and improve security and education also saw their respective scores dip, though in lesser degree thanthe losses seen in economic factors. The sole variable showing any improvement was the indicator of the government’sability to reinsert Mexico into the world economy. The current measure of government performance came in below thatscored at the end of 2010. This sagging score was heavily affected by falling scores in economic variables. It appearsthe assessment of government performance over the remainder of the year could be negatively affected by the saggingoutlook for the business climate and future situation of businesses, which were outperformed by other measures.


51

Business Barometer 26 News and Business 13

The analysis of federal financial reforms proposed by the current administration shows that fully 70% of business leaderssurveyed are aware of these proposals. This is a key indicator because the reforms promise to help drive economic growth,underpin consolidation of the financial sector, broaden access to credit, stabilize interest rates, and generally ease burdenson start-up enterprises while lowering financial intermediation costs.

Fully 36% of business leaders surveyed put greater access to credit as the central benefit of the financial reforms, withgreater competition and economic growth cited as the top effect by 17% and 14%, respectively. As such, access to creditappears to be the variable business leaders believe will exert the most significant effect on investment and consumptioncapacity. Similarly, it is evident that business leaders expect to see an uptick in competition in the financial sector, largelybecause of the broader array of financial products and options. It is interesting to note that reduction of interest rates andlower financial intermediation costs are not particularly significant in the minds of business leaders, though these are effectsthe reform should in fact bring about. Even though the reform is expected to spur economic growth, business leaders donot expect this to be significant in the creation of new businesses.

Are you aware of the financial reforms proposed by the federal government?

What will be the most significant impact on the national economy of the financial reform package?

36%

17%

14%

11%

10%

5%

4%

3%

0 5 10 15 20 25 30 35 40

Greater access to credit

Greater competition the financial sector

Economic growth

Solidity of the financial sector

Reduced interest rates

Lower financial intermediation costs

Creation of new businesses

Other

30%

70%

No

Yes

News and BusinessV

14

These results are congruent with the expectation of the benefits of the reforms in their respective organizations. Fully31% believe that enhanced access to credit will have a positive impact, while 20% reported that the reform will result in abump in sales and 17% said their company’s investment capacity will be improved. Another 16% of those surveyed foreseea reduction in collection costs as a key benefit of the reform. It is clear that enhanced access to credit is foreseen and thatrespondents expect this to have a positive impact on investment capacity and sales. Moreover, 38% of those surveyedbelieve all aspects of the economy shall benefit from the reforms, while 26% believe small and medium sized enterprisesshall reap the most benefit from the reform package. No doubt these results show a broad consensus of the positive effectsof the reform on Mexico’s overall economic performance.

31%

20%

17%

16%

8%

6%

2%

0%

0 5 10 15 20 25 30 35

More financing options

Increased sales

Growth of investment capacity

Lower credit and collection costs

Easing of collection risk

Don’t know

None

Other

What will be the major benefit of the financial reform for your company?

Business Barometer 26 News and Business 15

With respect to telecommunications reform, Business Barometer 26 reveals that 62% of those surveyed are aware ofit, while 30% believe it will rein in communications overhead. Fully 24% of business leaders believe the reform willbroaden communication services, while 23% expressed the belief that their respective companies will enjoy greater accessto communication and information technologies, including broad-band services. In contrast, only 14% of those surveyedbelieve the reform will serve to improve communication services. In synthesis, our survey shows that business leaders believethe telecommunication reform package will help lower communication costs while providing more options to the benefitof both internal operations and client services.

38%

26%

19%

6%

5%

3%

2%

1%

0 5 10 15 20 25 30 35 40

All economic agents

Small and medium sized companies

The large banks

The large companies

The government

Private individuals

Small banks

No one in particular

38%

62%

No

Yes

In your view, who will benefit most from the financial reforms?

Are you aware of the telecommunications reform?

16

30%

24%

23%

14%

4%

2%

2%

1%

0 5 10 15 20 25 30 35 40

Lower communications overhead

Broader array of communications services

Greater access to information and communication technology, including broad-band

Improved communication services

More and enhanced client communication strategies

None

Don’t know

Other

In your view, what is the most important benefit for your company promised by the telecommunications reform?

Business Barometer 26 Conclusions 17

ConclusionsBusiness Barometer 26 offers a perspective quite distinct from the panorama previously reported. In general terms,we can see a less favorable outlook of productive activity in Mexico. Currently and for the immediate future, the economicsituation, employment and the investment climate are casting a negative shadow within the minds of business leaderssurveyed. While there is generally upbeat consensus with regard to the recently approved telecommunications reformpackage and the pending financial reform, this has not translated into positive opinions of the economy and the businesssituation of companies. Sagging demand faced by businesses has begun to worsen, something that appears to weigh onthe minds of business leaders surveyed. In this regard, the performance of the economy seems to carry significant weightin business leaders’ assessment of the government’s performance, which in this edition dropped against previousmeasurements. Moreover, worries about the development of infrastructure, growing the economy, strengthening jobcreation and improving education continue to weaken the government performance score. All told, one can infer thatthe performance of the economy has begun to carry more weight in the minds of the business leaders surveyed.

Consequently, Business Barometer 26 reveals similar opinions of both the business climate and the situation of businesses.Unfortunately, and for both for the current time and the immediate future, it appears business leaders have adjusted theiroutlook for the Mexico’s productive activity to the downside. Despite this adjustment, inflation and the exchange ratecomponents remain upbeat. In terms of prices, most business leaders believe Banco de Mexico targets will be met, whileexpecting the peso to fluctuate around 13.00. As such, it appears clear that there is considerable confidence in currentmonetary policy, though this has not spilled over to boost confidence in the performance of the macro-economy.

Progress in the implementation of reforms received a good score. Business leaders surveyed believe these reforms will bebeneficial for the general population and for business. Access to credit, more credit product options, greater investmentcapacity, higher sales volume and brisker competition are the components that make up this score reflecting the effectsof the financial reform package pending in Congress. Meanwhile, lower costs of communication and a broader supply oftelecommunications products and services are some of the benefits anticipated by respondents from the recently passedtelecommunications reform package. In this regard, one must keep in mind that political discord could begin to cast ashadow on future scores for this indicator. Business Barometer has shown that political discord as a threat to the Mexicaneconomy has in fact ticked upward, suggesting that business leaders grasp the importance of reaching basic agreementsabout reforms and other structural modifications required by Mexico. This situation can be seen clearly in the pactsachieved early in the Peña Nieto administration, which underpinned a general sense of certainty and approval amonginvestors, something to be kept in mind as Mexico strives to grow and develop its economy. These matters have been inthe works for many years and they currently are the main factors of dipping expectations among business leaderssurveyed. As such, they should not be underestimated.

VI

18


89

72

79

7169

6058

84

78

82

87 88

8483

87

84

6971

7067

7273

75

6873

7473

67

74

68

76

7073 73

80

6972

57

62

52

83

87 89

83

7270

77 777474

7470

70

7575

8585

6767

49

AverageAverage

Businessenviroment

Company Companies’ general

Future situation and business environment (within a year at the time of surveys)(0: pesimist; 100: optimist)

* Business environment: Five indicators (Investment climate, credit availability, employment, security and economic situation).** Company: Six indicators (Production capacity, employment, prices, production, profitability and wages).*** Companies’ general situation.

T2T1T4T3T2T1T4T3T2T1T4T3T2T1T4T3T2T1Prom.Prom.

2012 2013201120092007 2008 2010


AverageAverage

Survey universe

0

5

10

15

20

25

30

17%

28%

4%3%

15%

5%4%3%

21%

Transport and Aviation Services

Consumer Products

Life Sciences and Healthcare

Manufacturing

Real State

Financial Services

Technology, Media and Telecommunicat

Energy and Natural Resources

Services

33%

11%

13%

10%

8%

7%

12%

6%Not available

More than 10,000

Between 5,001 and 10,000



Between 501 and 1,000

Between 301 and 500

Less than 300

Business Barometer 26 surveyed 418 executives working in Mexico’s leading companies, June 3-21, 2013.According to the most recent information available, these companies achieved collective sales amountingto 6,403,976.50 million pesos.

Participation rate by industry

VII

We thank all those who participated in the research for Business Barometer No. 25, especially Dr. Jose Luisde la Cruz Gallegos, Director of the Business and Economic Research Center of ITESM-CEM, for his invaluableanalysis and assistance in drafting this report.

Income level

For further information, please contact us at:

www.deloitte.com/mx/[email protected]

Phone. +52 (55) 5080 6633, in Mexico City and the metropolitan area01 800 4 Deloitte (01 800 4 3356 4883)Toll free for the rest of the country.

www.deloitte.com/mx

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As used in this document, "Deloitte" means Galaz, Yamazaki, Ruiz Urquiza, S.C., which has the exclusive legal right to engage in, and limit itsbusiness to, providing auditing, tax consultancy, financial advisory, and other professional services in Mexico, under the name "Deloitte".

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities(collectively the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or takingany action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shallbe responsible for any loss whatsoever sustained by any person or entity who relies on this publication.

© 2013 Galaz, Yamazaki, Ruiz Urquiza, S.C.

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