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19October 2011
BusinessBarometer SurveyThe businesspulse survey
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Business Barometer 19 Introduction 3
Introduction
The nineteenth edition of the Deloitte’s Business Barometer Survey goes deep into the negative perception among Mexicanexecutives in regards the future of economics, which had been envisioned with the results from the previous quarter. Insecurityhas been displaced by the US economic slowdown now as the main threat perceived by executives in the Mexico’s businessenvironment.
This edition shows a significant impairment, compared to the same period in 2010, of all variables under which the businessenvironment is assessed. The business expectations gathered through this Barometer show a relevant setback, since they aresimilar to those achieved in the first quarter of 2008, before the last recession in the country. Thus, the perspectives in regardthe economic situation in general, the investment environment, and the credit availability show a pronounced weakeningcompared to previous quarters. The executives’ opinion states that such prospective overview will continue for next year,except in regard to inflation, which registers a slight improvement.
A positive aspect to be highlighted is the favorable assessment of the Federal Government’s performance, which showeda slight upturn in this last quarter, keeping in very high levels the particular perception of inflation control.
In general, the balance does not show positive expectations on the part of the executives during this quarter. However,it should be noted that the aforementioned is not attributable to the companies’ current situation, as it is kept at acceptablelevels and similar to those of the same period in 2010, but now characterized by a downward trend in the businessenvironment prospective.
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I Business environment
T1 T2 T3 T4
63
74
60
79
70
76
46
37
19
41
5658
59
65
58
72
76
5349
33
56
60
T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
T2 T3
77
70
6462
57
14
T4
Year 2011
T1
71
6158
52
11
74
65
55
13
6157
50
444140
13
T2
75
686662
58
16
63
T3
71
68
62
5855
18
Economic situation
Investment climate
Security
AverageEmployment
Credit availability
Current situation compared with one previous year (Average scores in a 01-100 basis*)
* Figures were computed by weighing percentages of responses better, the same or worse by 1, 0.5 and 0.
CurrentThe Business Barometer 19 points out that the executives’ assessment concerning the current business environment hasfallen off. Firstly, the appreciation of the economic situation in general shows a new decline of 21 points, from 71 points to50, the lowest level since the fourth quarter of 2009. The investment environment also shows a clear downfall in this quarter,going from 62 points to 44, and credit availability drops from 68 to 57 points. Security, meanwhile, also falls in this quarter,from 18 to 13 points.
4
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T2T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1
Año 2007 Year 2008 Year 2009 Year 2010
86
81
74
77
6867
64
60
75 7574
86
68
81
65
68
62
51
67
78
T3
8783
78
74
49
7270
47
T4
79
67
Year 2011
T1
49
79
727168
46
75
T2
80
737270
7575
78
7574
71
70
51
76
79
6362
363433323124
42
5658
6364
58
5453
50
46
555451
46
5861575654
45
7270
49
6868
67
47
88
83
76
50
75
T3
56
545250
43
55
72
6462
44
66
Economic situationInvestment climate
Security
AverageEmployment
Credit availability
Future situation within one year (Average scores in a 01-100 basis*)
* Figures were computed by weighing percentages of responses better, the same or worse by 1, 0.5 and 0.
FutureThe expectations of respondents to the survey about the business environment for next year are negative in all aspectsevaluated. These are even more pessimistic than those foreseen the previous quarter, thus, the lowest as of the fourthquarter of 2008. In this context, executives visualize that in 2012 the economic situation will suffer a setback especiallyin terms of employment, which is related to the low expectations projected on credit availability and investmentenvironment. Meanwhile, lack of security will remain being a negative factor for the business environment.
Business Barometer 19 Business environment 5
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CurrentThe executives’ perspective on the overall situation of the companies compared to the previous quarter is slightly lower, andparticularly in aspects such as profitability and employment, which takes place for the second consecutive quarter. Since mostof the executives state that the situation of demand for their goods or services is kept within a normal or high range, this allowssetting forth that their negative expectations are based on the national economic context, since there has not been a significantlyadverse impact on their companies’ performance.
Year 2011
T1T2T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
59
84
646665
85
7977
74
70
66
63
70
7779 79
7272
79
78
69
74
65
58
62
75
63
30
72
T3
72
66
59616364
58
73
59
626365
54
T4
7472
62
6567
71
58
67
75
71
T2
75
72
65
6769
63
T3
75
67
6466
5655
69
63
67
61
Wages
Production
ProfitabilityEmployment
Prices
Average
Production capacity
Current Company situation compared with the one in previous year (Average scores in a 0-100 scale basis*)
*Figures were computed by weighing percentages of responses higher, the same and lower by 1, 0.5 and 0.
II Company situation
6
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Business Barometer 19 Company Situation 7
Going deeper in the assessment of executives on the level of demand currently kept by their companies, results showthat the current economic scenario has adversely affected a small number of respondents. In this sense, the numberof surveyed companies with high demand has been reduced by 9% compared to the previous quarter, moving from 25%to 16%; out of the 9 variation percentage points, 5% are now placed on low demand and the other 4% showed normaldemand. All in all, executives who keep a normal demand situation are still a wide majority (61%).
T1 T2 T3 T4
52
55 55
51
54
464342
32
20
21
15 151717
31 3128 30 28
27
22
15
912
1314
19 18
8
37
40 41
5154 54
57
59
36
61
T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
T2 T3 T4
Year 2011
T1
55
18
T2 T3
20
2725
61
16
23262624
23
30
4549
5451
High Normal Low
Current company demand (percentage distribution of responses)
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T2T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
87
8283
80
76
67
79
88
8382
72
81
67
8382
75
69
76
81
7980
8786
75
70
70
79
T3
67 67
727374
76
80
T4
6869 69
73 7374
78
Year 2011
T1
72 72
7576 76
78 78
82
717172
74 74
7980
6871
87
T2 T3
62
69
67
7475
ProductionWages
Employment
Prices
Average
Profitability
Production capacity
Future situation (within a year) of the companies with regard to the date of the survey(Average scores in the 0-100 scale*)
* Figures were computed by weighing percentages of responses higher, the same and lower by 1, 0.5 and 0.
FutureAll indicators on the executives’ expectations, concerning their company’s performance next year, show a downward trend.This situation confirms the impairment of their general perceptions about the economic future. Production goes from 78 pointsin the previous quarter to 74 in this quarter; profitability drops from 74 to 67 points, and employment, from 67 to 62.
However, even though perspectives about the future of companies within a year are negative, they are still far from thoseexisting at the height of the crisis in 2008. Although on average they are the lowest since the second quarter of 2009.
8
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Expected inflation (percentage of responses)
30%
54%
5% 10%0%
0%
Less than 3.5%
Between 3.5 and 4%
Between 4 and 5%
Between 5 and 6%
Between 6 and 7%
More than 7%
InflationInflation expectations for 2011 among the executives surveyed show a marginal improvement, most of them (54%)consider that such variable will be positioned between 3.5% and 4% for 2011. This continues to show confidence thatinflation will be among the ranges put forth by Banco de México. Only 10% expects inflation below 3.5%.
Regarding inflation expectations for 2012, 39% said it would be kept between 3.5 and 4%, while 38% of executivespredicted it would move in a band ranging from 4 to 5%; 12% of them said it would be less than 3.5%.
III Inflation and exchange rate
38%
39%
9% 12%
0%2%
Less than 3.5%
Between 3.5 and 4%
Between 4 and 5%
Between 5 and 6%
Between 6 and 7%
More than 7%
Inflation by year-end 2011
Inflation by year-end 2012
Business Barometer 19 Inflation and exchange rate 9
Barometer_19:Layout 1 31/10/2011 9:05 AM Página 9
89% 92%
82%
63%
52%
61%
28%
10%
8%
93%
11% 8%
18%
37%
48%
39%
72%
90% 92%
71%
29%
7%
March 2009 June 2009 Sept 2009 Dec 2009 March 2010 June 2010 Sept 2010 December 2010 March 2011 June 2011 Sept 2011Survey Survey Survey Survey Survey Survey Survey Survey Survey Survey Survey
More than $13.01 pesos per dollar
Up to $13.00 pesos per dollar
10
Exchange rateRegarding the exchange rate evolution for next year, 55% of executives surveyed expect the dollar to move within a rangeof 12.51 and 13.00 pesos, while for 22% of executives, the US currency will be between 13.01 and 13.50. Only 1% ofrespondents consider the dollar will range between a 14.51 to 15 pesos quote.
Another relevant fact related to this quarter is that expectations concerning the exchange rate have changed comparedto those of the previous quarter: percentage of those who believe the dollar will be traded above 13 pesos has gone from8% to 29%.
22%
16%
55%
1%
0%5%
1%
Less than 12.50
Between 12.51-13.00
Between 13.01-13.50
Between 13.51-14.00
Between 14.01-14.50
Between 14.51-15.00
More than 15.00
Exchange rate December 2011
Exchange rate within a year (percentage of responses)
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IV Threats to economic activity
The executives’ perception concerning threats to the Mexicaneconomy over the next 12 months records a significant trendchange: the US economy slowdown comes up as the mostworrying problem, overcoming insecurity for the first timesince the first quarter of 2010. The magnitude in the riskperception increase posed by the US slowdown can beobserved in the sharp upward variation shown by thisindicator: it jumps from 27% in June to 50% in this quarter.
Insecurity, on the other hand, registers a significant drop,from 52% in the second quarter to 37% in September 2011.Perception of risks related to political disagreements alsoshows a decrease, from 18% to 11%.
Meanwhile, inflation and the possible variations in oil pricesare perceived as marginal threats to the economy and arekept barely visible in the poll.
Threats to the Mexican economy within the incoming months (percentage of responses)
T2T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
13
35
39
77
70
18
15
24
53
38
33
49
31
22
11
3
26
21
12
2 236
3232
26
44
39
11
24
16
26
17 17
20
5
33
7
4
231
12.5
6
36
23
41
19
7
3.75
3
6
3 3
43
31
16
11
T3
57
20
16
5
2
52
2727
19 17
3
1 1
T4
Year 2011
T1
57
23
16
2
57
18
T2 T3
21
1
3
52
18
27
12
50
11
37
1
Insecurity
US economic slowdown
InflationOil prices
Political disagreements
Business Barometer 19 Threats to economic activity 11
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Government performanceThe Federal Government’s performance is kept in increasinglevels of acceptance in all areas surveyed, except for policiesto reduce unemployment. Among the policies with greateracceptance, there are keeping inflation under control (87%),improvement and expansion of infrastructure (63%), andefforts to boost the economic growth (51%). These threepositive indicators on governance also have the peculiarityto have been continuously rising for six quarters, whichshows a strong trend in the executives’ assessment.
The areas in which the government gets the lowest scorescontinue to be fight against insecurity, in which executivesassigned only 23 points, remaining at similar levels overthe past three quarters. Likewise, reduction of poverty,which is scored with 29 points, is having a gradual growth.
Opinions on government performance (average scores in a 0-100 scale*)
T2T2T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1
Year 2007 Year 2008 Year 2009 Year 2010
83
64
4446
3435
38
63
5655
4145
7069
85
747371
49 4948
52
47
53
48
39
51
83
53
7979
67
58
494847
54 5451
43
85
49
54
61
T3
76
34374144
27
78
19
353839
51
29
16
T4
20
2727
Year 2011
T1 T3
41
80
394146
50
82
23
48
54
30
43 45
86 87
50
55514948
40
29
23
63
33
42
48
57
48
33
15
384045
59
51
36
32
26
414349
62
52
3332
27
35
39
46
6262
48
353230
37
3944
65
46
282624
31
3538
69
38
2120
2325
30
66
38
2624
16
293134
58
35 41
32
36
3229 28
2622
1918 15
2023 23 25
22
Inflation control
Infrastructureimprovement/increase
Economic growth
Unemployment reductionAverage
Repositioning Mexicoin the world
Education improvement
Security improvement
Poverty reduction
* Figures were computed by weighing percentages of responses better, the same and worse by 1, 0.5 and 0.
12
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Business Barometer 19 Special section 13
Special sectionExpectations about other environment variables
In the interest of outlining some of the executives’ expectations about the business environment related to other variablesof potential impact, this time the Business Barometer sought advice on related issues both domestic and abroad.
According to the opinion of 72% of the executives surveyed, the United States will suffer a slowdown in their economicgrowth; while 20% of them expect the country to fall back into recession, and only 8% keep an expectation about theirgood economic performance over the next 12 months.
Recession (economiccontraction with
negative consequences)
Economic deceleration(lower economic growththan in the immediately
previous period)
Good economic performance
20%
72%
8%
0 10 20 30 40 50 60 70 80
Over the next 12 months the US will undergo one of the following stages:
This perspective on the evolution of the US economy plays an important role, given that 79% of the executives surveyeddeclare to have greater success in planning, strategy, and operations inasmuch as the performance of that country ispositive. Only 14% of them state that what happens in the United States does not affect their companies, and in theopinion of 7% of the executives, the fact that the US economy has poor performance benefits their business strategies.
Yourexpectations
worsen
Yourexpectations
improve
There is noinfluence
7%
79%
14%
0
10
20
30
40
50
60
70
80
Negativelyaffects youroperations
Encouragesthe creation
of opportunities
Does notaffect youroperations
40%
14%
46%
0
10
20
30
40
50
60
70
80
With respect to your planning, strategy andoperations, the greater the US economic growth
The European Union’s economic and financialperformance (public debt, unemployment, low growth)
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14
With regard to the public debt crisis affecting several member countries of the European Union, it is a disturbing factfor 40% of the executives, while for 46% of them it will have no effect on their companies’ performance.
With regard to the current economic environment in Mexico, the need for contingent actions primarily on cost reductions(72%) and adopting new business strategies (64%), which allow overcoming the expected difficulties, is already put forth.
Lower investment
Contract indebtedness
Search for new investors
Reduce costs
Implement new salesand management strategies
Reduce payroll
Increase payroll
Modify prices
Higher investment
13%
15%
11%
72%
64%
17%
8%
31%
29%
0 10 20 30 40 50 60 70 80
According to the current economic environment in Mexico, will you take any contingency measures for yourbusiness over the following 12 months?
According to 74% of the executives, the poor performance of Mexico's economy will adversely affect their business planning.
NoYes
26%
74%
Will Mexico’s growth low expectation negatively affect your business planning?
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Business Barometer 19 Special section 15
As regards the public debt problem faced by the federated entities, 71% of executives point out that it is not relevantto the performance of their businesses. In terms of confidence, only 45% of respondents believe that the FederalGovernment and the Congress can get to implement an economic program with measures that allow mitigatingthe difficulties caused by an adverse international situation.
Relevant to yourbusiness activities
Not relevant to yourbusiness activities
29%
71%
0 10 20 30 40 50 60 70 80
The federated entities’ public debt problem is:
Finally, with regard to the upcoming presidential elections, 59% assure that they will not alter their business perspectives,while 25% consider the elections will harm them. For the remaining 16% the elections will favor their growth perspectives.
Does not alter your foresights
Promotes your economicgrowth foresights
Impairs your economicgrowth foresights
59%
16%
25%
0 10 20 30 40 50 60
The 2012 presidential election in Mexico:
In the current international juncture, do you think that the executive power and the legislative power are ableto implement an economic program that promotes the business environment?
NoYes
45%
55%
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16
XVII XVIII XIX
91 92
8388
7875 74
56
69
84 78 82 87 88 84 83 878479
78
81
7576
68
80
6771
56
73
54
70
54
32
55
6958
70
7172
67
737375
68
7374 73
677468
76
70
73 7369
52
62
Companies´ general***
Company**
Business environment*
V Conclusions
General situation (0: pessimistic; 100 optimistic)
The results of the Deloitte’s nineteenth Business Barometerallow concluding that the expectations of executivessurveyed regarding the general economic environmenthave been significantly reduced over the past two quarters.This trend is now accentuated in almost all indicators.
Executives perceive that the difficulties and threats toMexico's economy originate abroad, particularly fromthe United States, since this quarter the US slowdown isconsidered as the main threat. While most of them expectthat the main trading partner does not fall back intorecession again (understood as an economic contraction),they think it will have a significant economic slowdown(lower economic growth) with negative impact on Mexico.The direct problems of the European economy do notseem to be relevant for most of the executives surveyed,reaffirming the concerns about our northern neighbor.
Positive perceptions about the business environmenthave had a significant drop during the year. The currentsituation of the companies also shows an impairmentcompared to the previous quarter, though to a lesserdegree, and remains at levels similar to those recorded inSeptember 2010. However, the business projections nowcarried out by executives for the following 12 monthsevidence a downward trend. This is causing companiesto activate again their plans of cost reduction and toreinforce marketing strategies mainly.
Nevertheless, expectations about inflation are kept stablein positive terms. Likewise, the executives’ perceptions inrelation to the exchange rate evolution are placed atsimilar levels compared to the previous quarter, althoughthey have shown a significant change.
The setback shown by the Mexican companies in thisquarter compared to the last two quarters is not, onaverage, very pronounced, and it is still far from the lowperformances achieved in late 2008 and early 2009. Butit starts to show clear signs of a new downtrend. Most ofthe graphs already draw a descending parabola that couldfollow its course if the US economy does not begin toshow signs of recovery.
With respect to the Federal Government’s performance,which in the opinion of executives has improved in mostof the assessed aspects, it is still reliable in relation to theeconomic variables, even though there is some concernwith regard to employment. It is noteworthy that there isa divided scenario on the possibility of an economicemergency program, if required.
Finally, even when the future with respect to the country'spolitical change is uncertain, and there are no specifictrends, executives make evident that the handling of theirbusiness is today in their hands and relies on their skills,therefore, they are prepared for several scenarios in thebusiness environment.
* 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.
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Business Barometer 19 About the Survey 17
VI About the Survey
Industry participation
8%
9%
11%
11%
24%
11%
12%
14%
Less than 300Between 301 and 500Between 501 and 1,000Between 1,001 and 2,000Between 2,001 and 5,000Between 5,001 and 10,000More than 10,001Not available
18%
8%
4%
18%
23%
11%
8%
7%3%
Transport and aviation services
Consumer products
Services
Financial services
Manufacturing
Technology, mediaand telecommunications
Energy and natural resources
Real Estate
Life Sciences and Healthcare
The nineteenth Business Barometer survey was applied to 340 executives from major companies located in Mexico, betweenAugust 31st and September 23rd, 2011.
Altogether, the sales of these organizations exceed 4.9 trillion pesos, according to the latest information reported.
Average annual income
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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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© 2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
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