Mexican Economy

Perspective 2020
and 2021
Determinants of the impact of Covid19

1) number of infected
2) number of deaths
3) duration of the contingency
4) impact on the United States
5) effectiveness of the fiscal policy applied.

Source: Banco BASE

Scenarios (until june)

Growth 2020 Pesimist Neutral Optimist

Economic growth for

-10.00% -8.00% -5.00%
Mexico 2020

Source: Banco BASE

 Quarterly and annual growth
Expected quarterly growth for México in 2020 Expected annual growth for Mexico in 2020
(average: -9.5%)
15.00% 0.00%

-2.00%
10.00% 9.3%
-2.17%
-4.00%
5.4%
5.00%
-6.00%
-5.9%

-8.00%
0.00%

-1.24% -10.00%

-5.00%
-12.00% -11.2%

-10.00% -14.00%

-16.00%
-15.00%
-18.00%
-17.26%
-20.00% -20.00%
-18.92%
1T 2020 2T 2020 3T 2020 4T 2020 1T 2020 2T 2020 3T 2020 4T 2020

Source: Banco BASE

Historical figures of Mexico's GDP

• According to the base 2013 series published by INEGI, the strongest fall in
GDP in one year was in 1995, when it contracted by 6.26%.

• However, considering all the historical series of the Gross Domestic Product,
the worst contraction was in 1932, when the economy contracted 14.92%
(according to the base series 1970, which is no longer updated).

• During the Great Recession, the economy contracted 5.03% in 2009.

o The strongest annual contraction was 7.76% in Q2 2009

• Consecutive quarterly falls:

Duration Base year
1) 3Q 1932 - 2Q 1983 4 quarters 1993
2) 4Q 1985 - 4Q 1986 5 quarters 1993
3) 2Q 2019 - 2Q 2020 At least 5 quarters 2013

Note: technically, the figures are not comparable between series with different
basis.
New daily infections: on the rise

New daily infections in Mexico Total confirmed cases of Covid-19 in Mexico

9000 450000

8000 400000

7000 350000

6000 300000

5000 250000

4000 200000

3000 150000

2000 100000

1000 50000

0 0

15/03/2020
01/03/2020

15/03/2020

29/03/2020

12/04/2020

26/04/2020

10/05/2020

24/05/2020

07/06/2020

21/06/2020

05/07/2020

19/07/2020

01/03/2020

29/03/2020

12/04/2020

26/04/2020

10/05/2020

24/05/2020

07/06/2020

21/06/2020

05/07/2020

19/07/2020
Source: Bloomberg.
Secretaría de Salud
Mexico among the most affected countries

Confirmed cases of coronavirus Confirmed deaths

United States 4,568,037 United States 153,840
Brazil 2,555,518 Brazil 90,188
India 1,584,384 United Kingdom 45,961
Russia 828,990 Mexico 45,361
South Africa 471,123 Italy 35,129
Mexico 408,449 India 35,003
Peru 400,683 France 30,238
Chile 351,575 Spain 28,441
Spain 329,721 Peru 18,816
United Kingdom 301,455 Iran 16,343

At night on July 29th

Source: Bloomberg.
Deaths per million inhabitants

Deaths per million population

1. San Marino 1,238
2. Belgium 848
3. United Kingdom 677
4. Andorra 673
5. Spain 608
6. Italy 581
7. Peru 570
8. Sweden 567
9. Chile 485

10. France 463

16. Mexico 352

At night on July 29th Source: Bloomberg.

Recovery? Four scenarios
1. With recovery of 1.5% in 2021 and 2% in subsequent years, a
full recovery is achieved in 6 years (2026)
19000000

18500000

18000000

17500000

17000000

16500000

16000000

15500000
2018 2019 2020 2021 2022 2023 2024 2025 2026

Source: Banco Base.

Recovery? Four scenarios
2. With recovery of 5% in 2021 and 2% in subsequent years, a
full recovery is achieved in 4 years (2024)
20000000

19500000

19000000

18500000

18000000

17500000

17000000

16500000

16000000

15500000

15000000
2018 2019 2020 2021 2022 2023 2024 2025 2026

Source: Banco Base.

Recovery? Four scenarios
3. With 1% growth from 2021. Full recovery to 2018 levels
achieved in 11 years (2031)
19000000

18500000

18000000

17500000

17000000

16500000

16000000

15500000
2020
2018

2019

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031
Source: Banco Base.
Recovery? Four scenarios

4. With recovery of 1.9% from 2021 onwards (average of the

above scenarios), a full recovery is achieved in 6 years (2026)
19000000

18500000

18000000

17500000

17000000

16500000

16000000

15500000
2018 2019 2020 2021 2022 2023 2024 2025 2026

Source: Banco Base.

Quarterly Indicator of Economic Activity
by State (ITAEE) Annual Growth Rate
States 2019 1Q 2020
Tabasco -5.28% 7.68%
The map shows annual economic growth for Colima 4.32% 2.69%
the first quarter 2020. Sonora
Veracruz
-0.56%
0.69%
1.57%
1.41%
Campeche -2.15% 0.17%
Chiapas -2.46% 0.17%
Guanajuato -0.51% 0.07%
Chihuahua 2.08% -0.27%
Yucatán 1.42% -0.81%
State of Mexico -2.16% -0.81%
Baja California 2.05% -0.89%
Sinaloa 0.96% -0.89%
Mexico City -0.31% -0.96%
Zacatecas -3.30% -1.01%
Nuevo León 1.51% -1.17%
Michoacán -0.17% -1.55%
Tamaulipas 1.71% -1.81%
Oaxaca -3.22% -2.25%
San Luis Potosí -0.86% -2.56%
Durango 0.60% -2.94%
Nayarit -0.44% -3.11%
Jalisco 0.49% -3.17%
Aguascalientes -0.03% -3.20%
Tlaxcala 6.26% -3.38%
Morelos -2.03% -3.49%
Querétaro 0.38% -4.07%
Guerrero -1.39% -4.34%
Puebla -1.00% -5.85%
Quintana Roo -0.16% -5.85%
Hidalgo -1.40% -6.17%
Source: INEGI Baja California Sur -7.10% -6.33%
Coahuila 0.17% -6.76%
Impact of Covid-19 on economic activity and the labor market in
Mexico, INEGI

From the survey on the impact generated by covid-19 on businesses (May 2020):
• 46.7% of companies nationwide carried out technical stoppages or temporary
closures of 21 days or more.
• 93.2% of companies recorded at least one type of impact from the pandemic, 91.3%
recorded a decrease in revenue and 46.9% expect a decline in the next 6 months.
• 92.2% of the companies did not receive any type of support.
• Companies consider that the most necessary policies to support in the pandemic are:
deferment of payment for services (47%), cash transfers (41.3%) and access to credit
(41%).
From the telephone survey on covid-19 and the labour market (April 2020)
• Of the total number of employed people (32.9 million), 23.5% worked from home,
30.3% did not work their usual hours, 46.1% had a decrease in income and 21.8%
were temporarily absent.
• In 30.4% of homes, a family member lost his or her job due to the pandemic, and in
65.1% of homes there was a decrease in income.

No safety net
Expected job creation
• For employment, it is estimated that 1.86 million job positions will be destroyed, consistent
with a drop in GDP of nearly 9.5%. A creation of 31,000 jobs during July and a loss from
August to December of around 975,000 jobs is contemplated, as a consequence of a domino
effect due to the severe fall in economic activity.

Monthly creation (destruction) of formal employment

200,000
123,139
100,000 68,955
31,543
0

-100,000 -37,805
-83,311 -87,577
-200,000 -130,593

-223,286
-300,000 -268,345
-400,000 -344,526 -358,681

-500,000

-600,000 -555,247

-700,000

-800,000
2020/01

2020/02

2020/03

2020/04

2020/05

2020/06

2020/07

2020/08

2020/09

2020/10

2020/11

2020/12
Source: Banco Base.
Unemployment
• 12.4 million jobs were lost in April, but nemployment rate increased only marginally, from 2,9% in
March to 4.7% in April.
• Unemployment rate remained low because people that lost their jobs are not in search of another
job (therefore, entering the non-economically active population), since they were not fired and are
most likely waiting to resume worling as soon as businesses reopen.
• If the 12.4 million people would’ve remaind in the economically-active population, unemployment
rate would’ve reached 24.7%.

INEGI unemployment surveys, millions of people

March-20 April-20 May-20
Economically active 57.4 45.4 45.5
Non-economically active 38.7 50.2 50.4
Employed 55.7 43.3 43.6
Unemployed 1.7 2.1 1.9
Unemployment rate (%) 2.9% 4.7% 4.2%
Underemployed 5.1 11.0 13.0
Underemployment rate (%) 9.2% 25.4% 29.9%
Source: INEGI
Employment
• As of June 2020, total jobs registered at the Social Security Mexican Institute (IMSS), has fallen
1.113 million since the end of March. 83 thousand jobs were lost in June alone.

• Average salary has increased as a result of low-paying jobs being the most affected by the crisis,
especially those paying between 1 and 2 minimum wages (MW).

Monthly percent change in average salary Change in total jobs registered at IMSS
June 2020 vs March 2020
6%
Thousands
2017 2018 2019 2020 150
5% 1 1 16

-50 -9 -15 -33 -8 -19 -22 -12 -10 -12 -1 0 -1 -3

4% -51

-250
3%
-450
2%
-650
1%
-850
0%
-933
-1,050
1-2 MW
2-3 MW
3-4 MW

10-11 MW

13-14 MW
14-15 MW
15-16 MW
16-17 MW
17-25 MW
4-5 M
5-6 MW
6-7 MW
7-8 MW
8-9 MW
9-10 MW

11-12 MW
12-13 MW
Less than 1 MW

-1%

-2%
Ene

Nov
Abr
Mar

May
Feb

Ago
Jun

Jul

Sep

Oct

Dic

Source: IMSS
Payroll
• The real wage bill has not decreased in annual terms, but its growth rate has slowed sharply,
from a rate of 3.4% in April to 0.2% in June.
• However, from March to June the real wage bill has decreased by 3.0%.

Annual % change in real wage bill

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

-6%
jun.-06

jun.-07

jun.-08

jun.-09

jun.-10

jun.-11

jun.-12

jun.-13

jun.-14

jun.-15

jun.-17

jun.-18

jun.-19

jun.-20
jun.-16

Source: Banco Base with IMSS data

Retirement Savings System Reform Initiative (SAR)

• With the changes, the replacement rate is expected to rise by an average of 40%
from the current level.
Currently Proposal
Tripartite Contribution 6.5% 15%
Employer's Contributions 5.15% 13.87%
(the increase will be gradual)

Minimum contribution weeks 1,250 750

(25 years) (15 years)

Average pension value 3,289 pesos 4,345 pesos

• The increase in the employer's rate will be gradual over a period of 8 years:

Year 1 2 3 4 5 6 7 8
rate 5.15% 6.25% 7.33% 9.51% 10.60% 11.69% 12.78% 13.87%

• The employee contribution remains at 1.125%.

• The government's contribution remains at 0.225%, with an increase in the social
contribution to four times the Measurement and Update Unit.
Effects of Reforming the Retirement Savings
System (SAR)

• The reform will be positive for domestic savings and pensions, but it makes
employment more expensive and this could end up encouraging informality
or undermining employment recovery.
• Ideally, it should be presented with an expansionary fiscal policy.

Why?

• The increase in the employer's contribution represents a higher cost of

employment for companies (increases the cost of formal employment)

• A downward adjustment can be expected for wages, affecting income and

therefore consumption, which represents 66% of GDP.
Public finances, as of May 2020

• Total expenditure in the period January-May was $2.371 billion pesos.

o Increase of 4.6% real compared to January-May 2019.

• Programmable spending was $1.737 trillion pesos.

o Increase of 5.8% in real terms with respect to January-May 2019.
o There is an underspend of $71 billion pesos (3.9% of budget).

Source: Banco Base con información de SHCP

Budgetary income, as of May 2020

• The budget income was $2.196 trillion.

o Decrease of 3.1% compared to January-May 2019.

• Oil revenues decreased 47.3%, while non-oil revenues increased 5.1%.

o Among non-oil tankers, tax revenues grew 2.1% and non-tax revenues grew 63.3%.
o Non-tax revenues were 145% higher than what was programmed in the Federation's
Revenue Law 2020.
o This surplus represented $102.7 billion pesos, and includes funds acquired by the
liquidation of trusts.

• Despite these surpluses, budget revenues for the period January-May were 5.2% lower than
that approved in the LIF 2020, representing a shortfall of $120.5 billion pesos. If the surplus
in non-tax revenues had not been had, the fiscal hole would be close to $223 billion pesos
(approximately 1% of GDP).

• Comparing only May 2020 vs. May 2019, the fall in tax revenue was 14.6%.

* All percentage changes on this slide are in real terms

Tax revenues

Annual tax revenue performance in May (%), Mexico

5%
2.2

0%
-0.9
-5%

-10%

-15%
-14.6
-20% -18.4

-25% -23.3
-25.7
-26.9
-30%

-35%
-36.5
-40%
Tributarios Impuesto sobre Impuesto al Impuesto IEPS gasolinas y IEPS distinto de Impuestos a la Impuesto por la
la renta valor agregado especial sobre diesel gasolinas y importación actividad de
producción y diesel exploración y
servicios explotación de
hidrocarburos

Source: Banco Base con información de SHCP

Public debt
• The Historical Balance of Public Sector Financial Requirements (SHRFSP) was $11.86
billion pesos at the end of the first quarter of 2020, of which 60% corresponds to
domestic debt and 40% to foreign debt.
• The SHRFSP of 1Q2020 is equivalent to 48.7% of the GDP.
• Keeping the SHRFSP constant, a contraction of the GDP of 9.5% in the year would take
the debt/GDP level to 54.1%.
• Additionally, with an expected exchange rate of 24 pesos per dollar at year-end, the
debt/GDP level would reach 54.4%.
SHRFSP/PIB
60%

55%
Estimación
50%

45%

40%

35%
1T 2T 3T 4T 1T 2T 3T 4T 1T 2T 3T 4T 1T 2T 3T 4T
2017 2018 2019 2020

Source: Banco BASE con información de SHCP

Pemex
Debt of major oil companies
• Pemex is the most indebted oil 12
11.3
10.9
company in the world, with a
10
debt of 107.1 billion dollars.
8
• On June 22nd, it requested
6
deferral of its payments to three
of its contractors until next year. 4

2
• On July 8, it announced an
0
exchange of notes with
maturities between 2027 and -2

Saudi Aramco (Arabia Saudita)

China National Petroleum

Rosneft (Rusia)

Pemex (México)
Chevron (Estados Unidos)

Lukoil (Rusia)

Petrobras (Brasil)
Gazprom (Rusia)
Exxon (Estados Unidos)

Valero (Estados Unidos)

Royal Dutch Shell (Reino

BP (Reino Unido/Estados Unidos)

ONGC (India)
2060, totaling $22.4 billion.

Unido/Países Bajos)

Corporation (China)
• Two of the three rating agencies,
locate Pemex's debt as
speculative bonds (garbage).

Deuda Neta/EBITDA Deuda Total/EBITDA

Source: Banco Base con información de Bloomberg

Pemex – 2T2020

• Second quarter of 2020: net loss of 44.337 billion pesos, which was less than the loss of
52.790 billion pesos in the second quarter of 2019.

• It should be noted that in the first quarter the loss was $562,251 billion pesos, most of it
explained by the effect of the depreciation of the Mexican peso.

• In the quarter, Pemex production was just 0.55% above the historical minimum, sales fell
35% at quarterly rate and 51% at annual rate. Gross income fell 85% quarterly and 89%
annually, while transportation and distribution expenses rose 8.1% quarterly.

• Pemex's debt in the year accumulated an increase of 24% (to $107.153 billion dollars)
and is now equivalent to 20% of the public debt (SHRFSP) and just over 50% of the
external debt. Therefore, Pemex is considered one of the most important risks for the
credit rating of Mexico's sovereign debt.

Source: Banco Base con Pemex data

Pemex Credit Ratings

Quality rate Moody´s S&P Global Fitch Ratings

Main Aaa AAA AAA
Aa1 AA+ AA+ Beginning of the six-year term of
High Grade Aa2 AA AA AMLO
Aa3 AA- AA- Currently (april 2020)
Upper A1 A+ A+
Intermediate A2 A A
Grade A3 A- A-
Baa1 BBB+ BBB+
Lower Medium
Baa2 BBB BBB
Grade
Baa3 BBB- BBB-
Degree of Ba1 BB+ BB+
Speculative Non- Ba2 BB BB
Investment Ba3 BB- BB-
B1 B+ B+
Highly
B2 B B
Speculative
B3 B- B-
Caa1 CCC+ CCC+
Substantial Risk Caa2 CCC CCC
Caa3 CCC- CCC-
Extremely Ca CC CC
Speculative C
Default C D D
Source: Banco BASE with data from Bloomberg
Pemex Credit Ratings

Quality rate Moody´s S&P Global Fitch Ratings

Main Aaa AAA AAA
Aa1 AA+ AA+ Beginning of the six-year term of
High Grade Aa2 AA AA AMLO
Aa3 AA- AA- Currently (april 2020)
Upper A1 A+ A+
Intermediate A2 A A
Grade A3 A- A-
Baa1 BBB+ BBB+
Lower Medium
Baa2 BBB BBB
Grade
Baa3 BBB- BBB-
Degree of Ba1 BB+ BB+
Speculative Non- Ba2 BB BB Agency Sovereign Note Last
Investment Ba3 BB- BB- Change
B1 B+ B+
Highly S&P BBB with negative 26 March
B2 B B
Speculative perspective (from 2020
B3 B- B- BBB+)
Caa1 CCC+ CCC+
Substantial Risk Caa2 CCC CCC Fitch BBB- with stable 15 April
Caa3 CCC- CCC- perspective (from 2020
Extremely Ca CC CC BBB)
Speculative C Moody´s Baa1 with negative 17 April
Default C D D perspective (from 2020
A3)
Relationship between credit rating and interest rate

Interest
County rating
rate(%)
Germany -0.45 AAA
Australia 0.87 AAA Credit rating vs. 10-year bond interest rate
Canada 0.51 AAA 14%
Switzerland 0.49 AAA
Denmark -0.32 AAA 12% Venezuela
United States -0.32 AA+
Austria 0.58 AA+
Finland -0.04 AA+ 10%
United Kingdom 0.59 AA
Francw -0.25 AA 8%
Brazil
Belgium -0.14 AA
Ireland 0.15 AA- Mexico
6%
Japan 0.14 A+
China -0.17 A+
Chile 0.47 A+ 4%
Spain 1.30 A
Iceland 0.82 A 2% United
Poland -0.06 A- States
Peru 3.45 BBB+
0%
Philippines 2.83 BBB+
Thailand 1.23 BBB+ Germany
Italy 1.07 BBB -2%
Portugal 0.36 BBB SD C CC CCC- CCC CCC+ B- B B+ BB- BB BB+ BBB BBB- BBB+ A- A+ AA- AA AA+ AAA
Indonesia 6.95 BBB
Mexico 5.90 BBB
Russia 5.80 BBB
Colombia 5.39 BBB- Country risk rating
Croacia 0.99 BBB- Mexico 291 BBB • Countries with the same
India 5.81 BBB-
Marrocco 2.31 BBB-
Colombia 263 BBB- investment grade rating as
Indonesia 226 BBB
Brazil 6.61 BB- Mexico have an average
Greece 1.07 BB- Uruguay 190 BBB
Honduras 5.63 BB-
Russia 203 BBB-
interest rate of 3.5% and a
South Africa 9.20 BB-
Turkey 12.31 BB- Croacia 90 BBB- country risk of 201.
Argentina 5.96 SD Peru 147 BBB+
Venezuela 11.46 WD
Private Consumption
Monthly growth of the Monthly Indicator of Private
GDP= C + I + G + (E-M) Consumption

5.00%

• In April, private consumption 0.00%

showed a monthly drop of 19.68%, -5.00%

the largest drop on record since -10.00%

the series began in 1993. -15.00%

-20.00%
-19.68%
• At an annual rate it contracted by -25.00%

1993/03
1994/04
1995/05
1996/06
1997/07
1998/08
1999/09
2000/10
2001/11
2002/12
2004/01
2005/02
2006/03
2007/04
2008/05
2009/06
2010/07
2011/08
2012/09
2013/10
2014/11
2015/12
2017/01
2018/02
2019/03
2020/04
22.30% in April, exceeding the
decline observed during May 2009
of 11.21%.
Annual growth of the Monthly Indicator of Private
Consumption
• The private consumption indicator
15.00%
has fallen 21.78% in April
10.00%
compared to December 2019. 5.00%
0.00%

• Confinement created a supply and -5.00%

-10.00%
demand shock. -15.00%
-20.00% -22.30%
-25.00%
1993/03
1994/04
1995/05
1996/06
1997/07
1998/08
1999/09
2000/10
2001/11
2002/12
2004/01
2005/02
2006/03
2007/04
2008/05
2009/06
2010/07
2011/08
2012/09
2013/10
2014/11
2015/12
2017/01
2018/02
2019/03
2020/04
Private Consumption

• Private consumption was dragged mainly by the deepening of the fall of imported goods consumption,
which showed a monthly decline of 21.35% and annual of 30.64% in April, impacted by the
depreciation of the peso against the dollar during March and April of 18.75% and 1.89%, respectively.

• Similarly, consumption of national goods showed a fall of 19.12% monthly and 21.16% annual.

• The weakness of private consumption is due to:

1. Fall in employment
2. Salary cuts by some companies to avoid layoffs
3. Uncertainty regarding the evolution of the pandemic

• In 2020, consumption is expected to shrink by 11.2%.

Private consumption of national vs. imported origin.
Monthly variation in seasonally adjusted figures
10.00%
5.00%
0.00%
-5.00%
-10.00%
-15.00%
-19.12%
-20.00%
-21.35%
-25.00%
2019/01

2019/02

2019/03

2019/04

2019/05

2019/06

2019/07

2019/08

2019/09

2019/10

2019/11

2019/12

2020/01

2020/02

2020/03

2020/04
Origen nacional Origen importado
Private Consumption

Private Consumption
Annual Average

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Private Consumption 2.46% 0.63% -5.84% 3.46% 3.23% 2.34% 1.71% 2.37% 1.74% 3.17% 3.37% 2.34% 0.71%
National Good and
2.38% 0.81% -4.71% 2.67% 3.03% 1.97% 0.80% 2.24% 1.72% 2.71% 2.99% 2.28% 0.45%
Services
Goods 1.57% 0.43% -7.93% 3.25% 2.79% -0.17% -1.20% 2.25% 1.04% 0.14% 3.40% 1.53% 0.35%

Services 3.36% 1.29% -0.90% 2.07% 3.31% 4.36% 2.90% 2.26% 2.56% 5.34% 2.57% 3.05% 0.54%

Imported Goods 3.41% -0.82% -16.99% 12.83% 5.50% 6.16% 10.71% 3.57% 2.29% 7.19% 6.78% 2.83% 2.86%

Private Consumption 2020

YoY

jan-20 feb-20 mar-20 apr-20 ene-apr 2020

Private Consumption -0.15% -0.73% -2.74% -22.30% -6.48%
National Good and Services -0.26% -0.64% -2.22% -21.16% -6.07%
Goods 0.31% -0.87% 1.12% -20.27% -4.93%
Services -0.45% -0.14% -5.55% -21.96% -7.03%
Imported Goods 1.44% -1.13% -8.64% -30.64% -9.74%
Gross Fixed Investment

• Gross Fixed Investment maintains its downward trend since January 2019, presenting in April the
largest monthly fall of 28.93%.

• At annual rate, a contraction of 37.13% was observed. It adds 15 months of annual contractions,
representing the largest period of consecutive falls.

• The indicator averages a contraction of 16.84% during the first 4 months of the year.

• It is expected that the falls in the IFB will average an annual contraction of 25% during 2020.

Gross Fixed Investment

Main factors hindering 15
S.A.. , %
10
investment: 5
• Increase in the number of 0
-5
infections -10
-15
• Lack of an expansive fiscal -20
-25
policy -30
-35
• Changes to the rules -40
2017/04
2017/06
2017/08
2017/10
2017/12
2018/02
2018/04
2018/06
2018/08
2018/10
2018/12
2019/02
2019/04
2019/06
2019/08
2019/10
2019/12
2020/02
2020/04
• Deterioration of economic
fundamentals
var.% mensual var.% anual Fuente: INEGI
Gross Fixed Investment
Machinery and Equipment
• Investment in machinery and equipment registered a fall of 25.09% per month and 38.00% per year.

• Impacted by the investment in the manufacture of transport equipment, both domestic and imported, with
monthly falls of 54.78% and 47.39%, respectively.

Construction
• Investment in the construction sector showed declines of 30.86% per month and 36.29% per year.

• IFB in the construction sector was dragged by the residential sector (-38.66% monthly).

• In contrast, non-residential construction showed a less severe drop of 22.27% per month, driven by an increase
in public sector physical investment of 22.2% per year in real terms in April. Some public works remained in
operation, while the rest of the construction was considered non-essential.

GDP= C + I + G + (E-M)

Machinary and Equipment Investment Construction Investment

20 20
10 10
0 0
-10
-10
-20
-20
-30
-40 -30
-50 -40
-60 -50
2017/04
2017/06
2017/08
2017/10
2017/12
2018/02
2018/04
2018/06
2018/08
2018/10
2018/12
2019/02
2019/04
2019/06
2019/08
2019/10
2019/12
2020/02
2020/04

2017/04
2017/06
2017/08
2017/10
2017/12
2018/02
2018/04
2018/06
2018/08
2018/10
2018/12
2019/02
2019/04
2019/06
2019/08
2019/10
2019/12
2020/02
2020/04
Total National Imported Total Residential Non-residential
Fuente: INEGI Fuente: INEGI
Gross Fixed Investment

Gross Fixed Investment

Annual average
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Gross Fixed Investment 5.71% 6.56% -11.38% 4.73% 7.84% 5.09% -3.27% 2.89% 4.91% 0.76% -0.94% 1.07% -5.10%
Machinery and
6.48% 6.30% -21.56% 16.60% 17.37% 10.21% 0.07% 4.19% 10.36% 3.25% 0.83% 2.95% -6.67%
equipment
National 3.96% 2.95% -18.40% 20.86% 15.45% 7.96% -1.94% 4.42% 12.15% 8.34% -2.37% -1.49% -4.52%
Imported 8.41% 8.92% -23.38% 13.91% 19.02% 11.97% 1.33% 4.14% 9.18% 0.25% 2.99% 6.05% -8.11%
Construction 5.27% 6.99% -6.50% -0.28% 3.59% 2.39% -5.23% 2.12% 1.29% -0.72% -2.23% -0.44% -3.78%
Resindential 3.91% 3.00% -11.48% -0.45% 4.60% 1.68% -4.82% 3.28% 3.86% 4.51% 1.96% 1.31% -1.52%
Non-residential 6.59% 10.48% -2.49% 0.07% 2.91% 3.01% -5.44% 1.30% -0.39% -4.70% -5.75% -1.90% -5.84%

Gross Fixed Investment 2020

YoY
Jan-20 Feb-20 Mar-20 Apr-20 Jan-Apr20
Gross Fixed Investment -8.55% -10.62% -11.07% -37.13% -16.84%
Machinery and equipment -10.26% -12.47% -17.87% -38.00% -19.65%
National -5.84% -5.71% -15.53% -53.45% -20.13%
Imported -13.04% -13.58% -19.42% -28.01% -18.51%
Construction -7.46% -8.29% -6.98% -36.29% -14.75%
Resindential -8.98% -7.85% -3.05% -41.06% -15.23%
Non-residential -14.51% -6.39% -9.21% -11.10% -31.34%
Foreign Direct Investment (FDI)
• In Q1 2020, the country received a total of $10.334 billion dollars in FDI, representing a fall of 26.28%
annually compared to the same quarter of 2019.

• New investments recorded a value of $2,271.1 billion dollars, equivalent to a contraction of 12.0% over the
same quarter of 2019. While the reinvestment of profits and intercompany accounts showed declines of
40.4% and 111.2%, respectively.

• Mexico has disappeared from the top 25 most attractive countries for FDI according to the Kearney 2020
FDI Confidence Index.

• FDI has been affected by the cancellation of projects by the government (NAIM and Constellations Brands
plant), the prioritization of low economic impact investments and the change of rules in the energy sector.

FDI Quarterly IED by Year

millions of USD millions of USD, YoY
60,000 140%
18,000
16,000 120%
50,000 100%
14,000
12,000 40,000 80%
10,000 60%
8,000 30,000 40%
6,000
20%
4,000 20,000 0%
2,000
0 10,000 -20%
-2,000 -40%
1Q 2015
2Q 2015
3Q 2015
4Q 2015
1Q 2016
2Q 2016
3Q 2016
4Q 2016
1Q 2017
2Q 2017
3Q 2017
4Q 2017
1Q 2018
2Q 2018
3Q 2018
4Q 2018
1Q 2019
2Q 2019
3Q 2019
4Q 2019
1Q 2020

0 -60%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
New Investments Profits reinvestment inter-company accounts millions of USD (right axis) YoY (left axis)
Source: Secretaría de Economía Source: Secretaría de Economía
Exports
• In june, the trade balance registered a historical surplus of 5,546.66 million USD.

• The strength of the economic activity originated from the side of the external demand, since exports (+75.57%
MoM), significantly exceded imports (+22.24% MoM)

• June´s data revealed a solid recovery in manufacturing activity (83.57% MoM), supported by the reopening of
the automotive sector after being paralyzed for a month and a half, although some automakers were able to
resume operations until the second half of June.

• The manufacturing industry still has production limits due to sanitary protocols, which represents a risk for the
country as a supplier of inputs and finished goods.

• Exports are expected to show a 14% drop in 2020. GDP= C + I + G + (E-M)

Balance of Trade of Merchandise in Mexico
June 2020, S.A.
June Jan-June
Main Concepts Var.% Var.%
mdd mdd
anual anual
Exports 33,076.50 -12.80% 183,053.30 -19.50%
Petroleum 1,258.00 -35.60% 8,044.10 -41.80%
Non-petroleum goods 31,818.50 -11.60% 175,009.20 -18.00%
-Agricultural goods 1,737.90 31.50% 10,540.90 7.30%
-Extractive goods 553.4 9.30% 3,200.10 5.80%
-Manufactures 29,527.20 -13.50% 161,268.20 -19.60%
Motor Vehicles 8,683.40 -31.00% 47,466.50 -34.60%
Source: INEGI
Foreign Investment Portfolio

• During 2019, portfolio investment decreased 49.94% compared to the previous year.

• For 1Q 2020, entered portfolio investment for a value of $1,268.7 billion dollars, below the
$8,548.9 billion dollars observed in 1Q 2019 (-85.20%).
 0.00

-10,000.00
-8,000.00
-6,000.00
-4,000.00
-2,000.00
2,000.00
4,000.00
15/01/2020 6,000.00
18/01/2020
21/01/2020
24/01/2020
27/01/2020
30/01/2020
02/02/2020
05/02/2020
08/02/2020
11/02/2020
14/02/2020
17/02/2020

Since February 21
20/02/2020
23/02/2020

In the year until July 20th

figures in millions of pesos

26/02/2020
29/02/2020
03/03/2020
06/03/2020

UDIBONOS
09/03/2020
12/03/2020
15/03/2020
18/03/2020
21/03/2020
24/03/2020
CETES 27/03/2020
30/03/2020
02/04/2020

UDIBONOS
05/04/2020
08/04/2020
11/04/2020
14/04/2020
17/04/2020
BONDES D

CETES 20/04/2020
23/04/2020

-11,921.97 -103,558.17
26/04/2020
29/04/2020
02/05/2020
05/05/2020
08/05/2020
BONOS M

11/05/2020
14/05/2020
-895.34
BONDES D

17/05/2020
20/05/2020
23/05/2020
30-day moving average of daily capital flow by type of instrument

26/05/2020
TOTAL
Holding of government securities by foreign residents

29/05/2020
01/06/2020
04/06/2020
07/06/2020
BONOS M

10/06/2020
-12,551.31 -71,575.70 -1,017.10 -333,132.39
-235,969.50

13/06/2020
16/06/2020
19/06/2020
22/06/2020
25/06/2020
28/06/2020
01/07/2020
04/07/2020
TOTAL

07/07/2020
Holding of government securities by foreign residents has dropped 19% since February 21

10/07/2020
-418,276.49
-352,344.98

13/07/2020
Non-resident position in equity securities

Non-resident position in equity securities. Millions of dollars.

200,000.0

180,000.0

160,000.0

140,000.0

120,000.0

100,000.0

80,000.0
oct-09

oct-11

oct-13

oct-15

oct-17

oct-19
oct-10

oct-12

oct-14

oct-16

oct-18
jun-09

feb-10
jun-10

feb-11
jun-11

feb-12
jun-12

feb-13
jun-13

feb-14
jun-14

feb-15
jun-15

feb-16
jun-16

feb-17
jun-17

feb-18
jun-18

feb-19
jun-19

feb-20
jun-20
The balances measure the total equity position recorded at the end of the month, valued at
the stock prices and the FIX exchange rate on the corresponding date.
The total equity position as of June shows a decrease so far this year of $44,257.6 million or
29.7%. With respect to the closing of February, just before the initial impact of the pandemic,
the position shows a decrease of 30,749.2 million dollars or 22.7%.
Growth estimate 2020
Risks by economic sector

Due to the global economic crisis caused by the COVID-19 pandemic, risk assessment in the sectors was split in
two. On the one hand, the short term (the next 6 months) is evaluated, where the behavior in the months prior to
the pandemic is analyzed, as well as the magnitude of the impact caused by the adoption of social distancing
measures. On the other hand, the risk is evaluated in the long term (more than 2 years), taking into account the
recovery capacity of each sector according to factors inherent to the industry and the structure of the Mexican
economy.

Each sector/sub-sector is given a risk level: HIGH, MEDIUM or LOW, where:

LEVEL OF RISK SHORT TERM (6 months) LONG TERM (>2 years)

HIGH The sector was strongly There are structural changes
affected. No recovery is that suggest that the sector
expected. will become less relevant.

MEDIUM The sector was affected. A
slow recovery is expected.
LOW The sector was little affected
by the pandemic, or even
benefited from it.
The sector will recover from
the economic crisis, but to be
a source of growth it needs
an environment conducive to
investment.
The sector can be a source of
investment attraction, with
high growth expectations.

In addition, the sectors marked with indicate those that may benefit from the USMCA/CUSMA trade agreement.
Risks by economic sector

In the short term, very few sectors are considered to be low risk. They stand out:

• Food industry
• Manufacture of computer, communication, measurement and other electronic
equipment, components and accessories
• Services related to e-commerce and trade in essential goods, such as food and
beverages

The other sectors are considered to be medium or high risk, as there is still a risk of
containment measures affecting their economic activity.

In the long term, a wider recovery is expected among sectors, as the impact of the first
year of the pandemic fades. However, some sectors may not see a full recovery due to
the following factors:

• Technological advancements (e.g. printing, oil activities, etc.)

• Changes in habits caused by the pandemic (e.g. use of office space, business travel)
• Lack of investment (e.g. public construction)
Economic sectors with the greatest potential for growth

• Food industry

• Beverage and tobacco manufacturing

• Chemical industry
o Pharmaceutical manufacturing

• Manufacture of computer, communication, measurement and other electronic equipment,

components and accessories

• Manufacture of machinery and equipment

• Manufacture of accessories, electrical appliances and power generation equipment

• Manufacture of transport equipment

o Aerospace equipment manufacturing

• Infrastructure for telecommunications

• Works and ancillary works for electricity and telecommunications

• Wholesale and retail trade of groceries, food, beverages, ice and tobacco
Risks Sector: Manufacturing

Manufacturing
Code Subsector ST LT
311 Food manufacturing Low Low
312 Beverage and tobacco product manufacturing Low Low
313 Textile mills Medium Medium
314 Textile product mills Medium Medium
315 Apparel manufacturing Medium Low
316 Leather and allied product manufacturing Medium Medium
321 Wood product manufacturing Medium Medium
322 Paper manufacturing Medium Low
323 Printing and related support activities High Medium
324 Petroleum and coal products manufacturing High High
325 Chemical manufacturing Medium Low
326 Plastics and rubber products manufacturing High Low
327 Nonmetallic mineral product manufacturing Medium Medium
331 Primary metal manufacturing High Medium
332 Fabricated metal product manufacturing Medium Medium
333 Machinery manufacturing High Medium
334 Computer and electronic product manufacturing Low Low
335 Electrical equipment and appliance manufacturing Medium Medium
336 Transportation equipment manufacturing High Medium
337 Furniture and related product manufacturing Medium Medium
339 Miscellaneous manufacturing Medium Medium
Risks Sector: Construction

Construction
Code Subsector ST LT
T Production value High Medium
T1 Building construction High Medium
T2 Water and sewer systemn cosntruction High High
T3 Electrical and telecommunications High Medium
T4 Heavy and civil enginerring construction High Medium
T5 Petroleum and petrochemical construction High High
T6 Other constructions High Medium

PUB Public sector High High

PRI Private sector High Medium

IFBCT Construction investment High Medium

Risks Sector: Trade and Services

Commerce
Code Subsector ST LT
MY Wholesale trade High Medium
MN Retail sales Medium Low

Services
Code Subsector ST LT
TS Wholesale trade Medium Medium
48-49 Transportation and warehousing Medium Low
51 Information Medium Medium
53 Real estate and rental and leasing High Medium
54 Professional and techincal services Medium Low
56 Administrative and waste services Medium Medium
61 Educational services High Medium
62 Health care and social assistence Medium Low
71 Arts, entertainment and recreation High Medium
72 Accommodation and food services High Medium
 Inflation
• The general inflation of the first half of July was at 3.59% annual.

Core Inflation (+3.84% inter-annual)

• The lack of economic reactivation is evident in the slight advance of the services component
(+0.12% biweekly). Although, air transport increased (+6.52% biweekly) due to the summer effect.

• Pressure from non-food goods (0.42% biweekly) derived from:

1. Non-essential goods demand recovery
2. Mexican peso depreciation pass-through
3. Disruptions in the supply chain
4. Increase in the price of fuel CPI
First half of July Bi-weekly YoY
CPI 0.36% 3.59%
Non-underlying inflation (+2.79% YoY) Core 0.25% 3.84%
Merchandise 0.36% 5.19%
Food, drinks, tobacco 0.32% 6.89%
• Pressure from the energy side continues, Non-food 0.42% 3.38%
although with more moderate advances. Services 0.12% 2.39%
Housing 0.06% 2.43%
Schooling 0.01% 4.34%
• The price of low- and high-octane gasoline Other services 0.19% 1.94%
increased by 3.03% and 2.84% biweekly. Non-core 0.69% 2.79%
Agricultural -0.26% 5.48%
Driven by: Fruits and vegetables -1.05% 8.03%
1. Greater mobility Livestock 0.40% 3.45%
2. Elimination of the STPS subsidy Energy and government-authorized tariffs 1.46% 0.77%
Energy 2.09% -0.72%
3. Rising oil prices Government authorized tariffs 0.13% 4.15%
Upward pressures
Downward pressures
Inflation (expectation)

General inflation and expectation

4.00% 3.85% 3.84%

3.70%
3.58% 3.62%
3.48% 3.43%
3.50% 3.33%
3.24% 3.25%

3.00% 2.84%

2.50%
2.15%

2.00%

1.50%
abril

noviembre

diciembre
mayo

julio
junio

agosto

octubre
febrero

marzo

septiembre
enero

Source: Banco BASE

 Monetary policy Real interest
Country Inflation
rate rate
Malaysia
Egypt
-1.90%
5.60%
1.75%
9.25%
3.65%
3.65%
Monetary Policy
Ukraine 2.40% 6.00% 3.60%
Thailand -1.60% 0.50% 2.10%
Indonesia 2.00% 4.00% 2.00%
Taiwan -0.80% 1.12% 1.92%
Iceland 2.60% 4.50% 1.90%
China 2.50% 4.35% 1.85%
Mexico 3.59% 5.00% 1.41%
South Africa 2.10% 3.50% 1.40%
Israel -1.10% 0.10% 1.20%
Russia 3.20% 4.25% 1.05% *rate over deposits
Switzerland -1.30% -0.75% 0.55%
South Korea 0.00% 0.50% 0.50%
Colombia 2.20% 2.50% 0.30%
Brazil 2.10% 2.25% 0.15%
Nigeria 12.60% 12.50% -0.10%
Hong Kong 0.70% 0.50% -0.20%
*contract rate recommendation for 7 days
Denmark 0.30% 0.05% -0.25% period
Philippines 2.50% 2.25% -0.25%
Eurozone 0.30% 0.00% -0.30% *principal rate of financing operations
United States 0.60% 0.25% -0.35%
Canada 0.70% 0.25% -0.45%
United Kingdom 0.60% 0.10% -0.50%
Sweden 0.70% 0.00% -0.70%
New Zeland 1.50% 0.25% -1.25% *discount rate
Peru 1.60% 0.25% -1.35%
Norway 1.40% 0.00% -1.40%
Australia 2.20% 0.25% -1.95%
India 6.10% 4.00% -2.10%
Chile 2.60% 0.50% -2.10%
Czech Republic 3.30% 0.25% -3.05%
Poland 3.30% 0.10% -3.20%
Argentina 41.30% 38.00% -3.30% *Leliq rate 7 days
Turkey 12.60% 8.25% -4.35%
 0.00%
1.00%
3.00%
4.00%
5.00%
6.00%

-2.00%
-1.00%
2.00%
ene-08
jul-08
ene-09
jul-09
ene-10
Real interest rate

jul-10
ene-11
jul-11
ene-12
jul-12
ene-13
jul-13
ene-14
jul-14
ene-15
Real interest rate in Mexico

jul-15
ene-16
jul-16
ene-17
jul-17
ene-18
jul-18
ene-19
jul-19
ene-20
jul-20
Source: Banco BASE
Exchange rate

Source: Banco BASE

Speculative positions in the Chicago futures market

Speculative positions in the Chicago futures market and the exchange rate
180000 27

160000
25
140000

120000
23
100000

80000 21

60000
19
40000

20000
17
0

-20000 15
14-Jan

3-Mar

5-May
7-Apr

2-Jun
9-Jun

7-Jul
11-Feb
18-Feb
25-Feb
21-Jan
28-Jan
4-Feb
7-Jan

14-Jul
21-Jul
14-Apr
21-Apr
28-Apr

16-Jun
23-Jun
30-Jun
10-Mar
17-Mar
24-Mar
31-Mar

12-May
19-May
26-May
Net long positions on MXN (left axis) USDMXN (right axis)
 0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
28/02/2020
06/03/2020
13/03/2020
20/03/2020

Texas
Georgia
27/03/2020
03/04/2020
10/04/2020
17/04/2020
24/04/2020

Florida
Alabama
01/05/2020
Exchange rate

08/05/2020
15/05/2020
22/05/2020

Idaho
29/05/2020

California
05/06/2020
Cases of coronavirus in some states

12/06/2020
19/06/2020
26/06/2020

Arizona
03/07/2020
10/07/2020
17/07/2020
24/07/2020

0
2000
4000
6000
10000
12000
14000
16000
18000

8000

28/02/2020
06/03/2020
13/03/2020
20/03/2020
27/03/2020
03/04/2020
10/04/2020
Texas

17/04/2020
24/04/2020
pandemic and the expectation of global economic recovery.

01/05/2020
08/05/2020
Florida

15/05/2020
22/05/2020
29/05/2020
05/06/2020
12/06/2020
California

19/06/2020
26/06/2020
The main determinants of the exchange rate are: the development of the

New cases confirmed daily. 5-day moving average.

03/07/2020
10/07/2020
17/07/2020
24/07/2020
Update of expectations

• The IMF adjusted its growth projection for 2020 downwards:

o Global growth: -4.9% (previously -3.0%)
o United States: -8.0% (previously -5.9%)
o Mexico: -10.5% (previously -6.6%)

• Mexico's expected drop is the fourth largest, behind France (12.5%), Italy (-
12.8%) and Spain (12.8%).

• The European Commission adjusted its economic contraction projection for

the Eurozone from 7.7 to 8.7%.

• The OECD estimates two scenarios for the global economy:

1) With a Covid-19 wave: -6.0%
2) With a second global wave of Covid-19: -7.6%
Mexico Risks
• Higher debt-to-GDP ratio despite no expansionary fiscal
policy
• Underspending
• Credit rating cuts in Mexico.
• Losses in PEMEX.
• Higher capital outflows.
• Increases in the exchange rate and pass-through (CPI)
• Increase of structural unemployment.
• Lack of confidence among consumers and
entrepreneurs.
• Sharp drop in FDI in 2020 and lasting until 2021.
United States
United States Growth

Annual growth (-6.5%)

2.00%
0.32%
0.00%

-2.00%

-4.00%

-6.00%

-8.00%
-7.76%
-8.14%
-10.00% -9.54%

-12.00%
1T 2020 2T 2020 3T 2020 4T 2020

Source: Banco BASE

 United States growth

Quarterly growth Annualized growth

4.00% 15.00%

2.20% 9.09%
10.00%
2.00%
1.00% 4.06%
5.00%
0.00%
0.00%

-2.00% -1.26% -5.00%

-4.96%
-10.00%
-4.00%
-15.00%

-6.00% -20.00%

-25.00%
-8.00%
-30.00%
-10.00% -9.49%
-35.00% -32.90%

-12.00% -40.00%
1T 2020 2T 2020 3T 2020 4T 2020 1T 2020 2T 2020 3T 2020 4T 2020

Source: Banco BASE

 Employment Situation in the United States

• A total of 14.106 million jobs have been lost since the pandemic began.

Non-agricultural payroll 2007-2020 Change in non-farm payroll 2020 (thousands)

(thousands) 10000
155000 4800
5000 2699
150000
214 251
145000 0
140000 -1373
-5000
135000
130000 -10000
125000
-15000
120000
115000 -20000
-20787
dic.-07

dic.-18
nov.-08

nov.-19
jun.-13

abr.-15
mar.-16
ene.-07

ago.-11
jul.-12

ene.-18
sep.-10

may.-14
oct.-09

feb.-17

-25000
ene.-20 feb.-20 mar.-20 abr.-20 may.-20 jun.-20

Source: Banco Base con información del BLS

Employment Situation in the United States

• Although temporary unemployment has decreased, permanent unemployment continues to

rise. In June, an increase of 588,000 people was observed, higher than the 295,000
observed in May.
• Permanent unemployment stood at 2.9 million people in June, while in February it was 1.3
million.
• The level of permanent unemployment accumulated in 3 months an increase of 1.6 million
people, this took 10 months during the 2009 crisis.

Permanent unemployment during crises. The

Permanent unemployment 2020 graph shows the change since the beginning of the
(thousands of people) recession.
6000
3500 40%
3000 35% 5000

Miles de personas
30%
2500 4000
25%
2000 20% 3000
1500 15%
10% 2000
1000
5%
500 1000
0%
0 -5% 0
mes 10
mes 15
mes 20
mes 25
mes 30
mes 35
mes 40
mes 45
mes 50
mes 55
mes 60
mes 65
mes 70
mes 75
mes 80
mes 85
mes 90
mes 95
mes 5

ene.-20 feb.-20 mar.-20 abr.-20 may.-20 jun.-20

mes 0

Desempleo permanente Var. % mensual

Eje izquierdo Eje derecho Crisis 2001 Crisis 2009 Crisis 2020

Source: Banco Base con información del BLS

 Unemployment Insurance
• Initial jobless claims for the week ending July 25 stood at 1.434 billion, showing an increase of 12,000
claims from the previous week.

• Initial claims increased for the second week in a row since the initial rise in March, accumulating 19
weeks over the million mark.

• Continuing claims, those who are already receiving unemployment support or who are still waiting,
stood at 17.018 million.

• The insured unemployment rate, which measures the number of people receiving unemployment
support as a percentage of the labor force, stood at 11.6% in the week ending July 18.*

Initial Jobless Claims Insured Unemployment Rate

8,000,000
18%
7,000,000 16%
6,000,000 14%
5,000,000 12%
10%
4,000,000
8%
3,000,000
6%
2,000,000 4%
1,000,000 2%
- 0%
ene.-20 feb.-20 mar.-20 abr.-20 may.-20 jun.-20 jul.-20 ene.-20 feb.-20 mar.-20 abr.-20 may.-20 jun.-20 jul.-20

Source: BLS

*The insured unemployment rate has been higher than the unemployment rate, due to a relaxation of the requirements for applying
for support and inconsistencies in the BLS classification.
Tax Incentives United States

Three stimulus packages have been approved so far:

1. Coronavirus Preparedness and Response Supplemental Appropriations Act : $8.3

billion
2. Families First Coronavirus Response Act: $192 billion
3. Coronavirus Economic Assistance, Relief and Security Act (CARES Act) : $2.3 billion

Included in the CARES Act is the Pandemic Unemployment Assistance (PUA) program:
• 13 additional weeks of traditional unemployment insurance
• Additional $600 per week, expiring July 31, 2020

Congress is expected to approve a new package of approximately $1 billion by the first

week of August.

The fiscal support of the United States represents 14.8% of the GDP, if
we consider the tax deferrals it rises to 17.3%.
The Federal Reserve

• At the start of the pandemic, the Fed cut its interest rate to a minimum in the range
of 0.00 - 0.25%.
• In addition: it lowered the discount rate, created swap lines with other central
banks, established different loan programs.

• Jerome Powell, indicated that he will not implement negative rates due to the
economic distortion it creates.
10-year and 30-year US bond yields
2.50
• Another alternative to maintain the flow of credit
2.00
even with low interest rates: Yield curve control
• In Japan, the central bank keeps 10-year 1.50

bond yields close to zero. 1.00

0.50

0.00

10 años 30 años

Source: Banco Base con información de FRED

 With the second wave of contagion, yields on 10-year and 30-year bonds fell back to levels not
seen since mid-April
Second wave of Covid-19 in the USA
Daily Cases Covid-19 USA
70,000

60,000

50,000

40,000

30,000

20,000

10,000

casos promedio 7 días

Source: Banco Base con información de Johns Hopkins

Car Mobility Transport mobility

180 140
160 120
140
120 100
100 80
80
60
60
40 40
20 20
0
0

Source: Banco Base con información de Apple

U.S. Elections 2020

• On June 1, Joe Biden surpassed Donald Trump, who has been losing popularity due to the
economic crisis caused by the pandemic and the nationwide protests against racism.

• Currently, bookmakers indicate that Biden has a 60.9% chance of winning against Trump's
36.4%.

Source: Real Clear Politics, 24 de julio

Demócratas vs Republicanos

• From 1945 to 2019:

Democrats Republicans
Average annual GDP 3.5% 2.9%
growth
Debt as % of GDP 63.5% 54.6%

• The Democrats have achieved an average growth of 0.6 percentage points higher
than the Republicans with a higher debt of 8.9 percentage points.

• Excluding the periods of the financial crisis (Bush and Obama mandates), the
difference in average growth between Democrats and Republicans rises to 1
percentage point and the difference in average debt falls to 2.2 percentage
points.

• With Obama the debt as % of GDP rose from 60 to 96% and with Trump to 107%
in 2020.
Exchange rate

Exchange 3Q 4Q Close 1Q 2Q 3Q 4Q Close

rate 2020 2020 2020 2021 2021 2021 2021 2021

USDMXN 22.80 24.20 24.20 23.00 22.00 21.40 21.30 21.30

VolatilITY 13.00% 10.00% 15.20% 10.00% 9.00% 9.00% 8.00% 9.00%

Commodities
 Crude Oil

Maximum Minimum Close Price Monthly

Units Annual Δ%
2020 2020 2019 Today Δ%
dollars per
WTI 65.65 -40.32 61.06 41.28 4.85% -32.39%
barrel
dollars per
Brent 71.75 15.98 66 43.81 6.46% -33.62%
barrel
Mezcla dollars per
59.35 -2.37 56.14 37.42 9.15% -33.34%
mexicana barrel
Source: Bloomberg.
Supply and Demand
World liquid fuels production and consumption balance
million barrels per day
110
forecast
105
101.53mbd
100.78mbd
World production
100
8.51mbd
95
World consumption
90 92.26mbd

85

// 84.37mbd
0 80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015 2016 2017 2018 2019 2020 2021

Source: Banco Base with information from the Energy Information Administration.

• Global average demand in 2020 is expected to be between 7.9% and 8.5% lower than the average
demand in 2019.
• By 2021, global average demand could be between 1.5% and 2.5% less than the average demand
in 2019.
• Between 5 and 7 million barrels per day (mbd) above the demand of 2020.
Inventories

U.S. commercial crude oil inventories

million barrels

600 monthly range from January 2015 - December 2019

forecast
575

550 540.72
-3%
525 525.97

500 26%

475
450

425
428.1
400
375

350

325
//300
0
275
ene 2015 ene 2016 ene 2017 ene 2018 ene 2019 ene 2020 ene 2021

Source: Banco Base with information from the Energy Information Administration.
 Demand, Post-Covid
United States, Total Implied Demand
24
21.86 11%
Millones de barriles diarios

22

20
19
18

16
38%
14

12 13.79

10
January February March April May June July August September October November December
United Stes, Motor Gasoline United States, Kerosene-Type Jet United States, Distillate
Implied Demand Fuel Implied Demand Implied Demand
11.06 2.5 5
9%
10.06
41% 9%
2 4.5
Millions barrels per day

Millions barrels per day

9.06

Millions barrels per day

8.8
1.5 4
8.06

7.06 3.5
1 1.02 3.635
74%
6.06 3
34%
0.5 121%
5.06 2.72
2.5
5.07 0.352
4.06 0
July
January

June
February
March

May

August

October
November
April

December
September

July
January

June
February

May
March

August

October
November
April

December
September

July
January

June
February
March

May

August

October
November
April

December
September
Source: Banco Base with information from the Energy Information Administration.
 Demand, Post-Covid
Open Table Mobility index, Automobile
40 200
20 180
160
0
140
-20
120
-40 100

-60 80
60
-80
40
-100 20
-120 0
18/02/2020 18/03/2020 18/04/2020 18/05/2020 18/06/2020 18/07/2020 13/01/2020 13/02/2020 13/03/2020 13/04/2020 13/05/2020 13/06/2020 13/07/2020

United States Canada Germany Canada Germany Mexico United Kingdom United States
Mexico United Kingdom Global
Source: Banco Base with information from Bloomberg. Source: Banco Base with information from Apple

Mobility index, Public Transportation United States, Total number of travellers

180 2,500,000 0%
160 -20%
2,000,000
140 -40%
1,500,000
120
-60%
100 1,000,000
-80%
80 500,000 -100%
60
0 -120%
40
3/16/2020
3/21/2020
3/26/2020
3/31/2020

4/15/2020
4/20/2020
4/25/2020
4/30/2020

5/15/2020
5/20/2020
5/25/2020
5/30/2020

6/14/2020
6/19/2020
6/24/2020
6/29/2020

7/14/2020
7/19/2020
7/24/2020
03/01/2020
03/06/2020
03/11/2020

04/05/2020
04/10/2020

05/05/2020
05/10/2020

06/04/2020
06/09/2020

07/04/2020
07/09/2020
20
0
13/01/2020 13/02/2020 13/03/2020 13/04/2020 13/05/2020 13/06/2020 13/07/2020 Total number of travellers
Canada Germany Mexico United Kingdom United States Δ% Total number of travellers (1 year ago - Same day of the week)
Source: Banco Base with information from Apple Fuente: Banco Base con información de TSA.
Oil

Close **Maximum *Minimum Δ%

Units 1Q 2Q 3Q Max 4Q Max
2019 2020 2020 2020

dollars -34.47%
WTI 61.06 65.65 -40.32 46.46 28.38 39-43 45 40-45 48
per barrel -25.07%
dollars -31.81%
Brent 66 71.75 15.98 51.22 33.36 41-45 50 45-50 53
per barrel -16.66%
Mezcla dollars -32.31%
56.14 59.35 -2.37 40.94 23.72 35-38 40 38-43 45
mexicana per barrel -23.40%

* Lows of the year; ** Highs of the year

-Quarterly expectations refer to the average for the period.

There are still many risks surrounding the price of oil. Among them:
• The possibility that this new wave of infections will increase, leading economies to implement
new containment measures.
• That it will negatively affect the recovery in global economic growth.
• A slower economic recovery.
• The political and trade relationship between the United States and China, which could worsen
and jeopardize the trade relationship.
• The trade relationship between the United States and the European Union.
On the contrary factors that could increase oil prices:
• That a vaccine or medication is found that will reduce the spread and/or effects of the
coronavirus.
• This would be positive, as it could increase mobility and demand for oil.
• A further reduction in oil production globally.
Gold and Silver

Maximum Minimum Close Price

Units Monthly Δ% Annual Δ%
2020 2020 2019 Today

Gold dollars per once 1,981.27 1,451.55 1,517.27 1,966.53 10.41% 29.60%
Silver dollars per once 26.2042 11.6418 17.8523 24.1485 32.63% 35.25%

Source: Bloomberg.
Gold and Silver ETF’s

Source: Bloomberg.
Gold Supply Chains

Gold production
Gold refineries
Gold financial markets
 0
200
400
600
800
1000
1200
1400

-200

-1000
0
500
1000
1500
2000

-500
01/03/2013 01/03/2013
01/05/2013 01/05/2013
01/07/2013 01/07/2013
01/09/2013 01/09/2013
01/11/2013 01/11/2013
01/01/2014 01/01/2014
01/03/2014 01/03/2014

Jewellery Fabrication
01/05/2014

ETFs & Similar Products

01/05/2014
01/07/2014 01/07/2014
01/09/2014 01/09/2014
01/11/2014 01/11/2014
01/01/2015 01/01/2015
01/03/2015 01/03/2015
01/05/2015 01/05/2015
01/07/2015 01/07/2015
01/09/2015 01/09/2015
Recycled Gold

01/11/2015 01/11/2015
01/01/2016 01/01/2016
01/03/2016 01/03/2016
Gold Supply and Demand

01/05/2016 01/05/2016
01/07/2016 01/07/2016
01/09/2016 01/09/2016
01/11/2016 01/11/2016

Technology Fabrication
Net producer Hedging
Gold Demand

01/01/2017 01/01/2017
Gold Production

Central Bank Net Purchases

01/03/2017 01/03/2017
01/05/2017 01/05/2017
01/07/2017 01/07/2017
01/09/2017 01/09/2017
01/11/2017 01/11/2017
Mine Production

01/01/2018 01/01/2018
01/03/2018 01/03/2018
01/05/2018 01/05/2018
01/07/2018 01/07/2018
01/09/2018 01/09/2018
01/11/2018 01/11/2018
01/01/2019 01/01/2019
01/03/2019 01/03/2019
01/05/2019 01/05/2019
01/07/2019 01/07/2019
Total Bar & Coin Fabrication

01/09/2019 01/09/2019
OTC Investment & Stock Flows

01/11/2019 01/11/2019
01/01/2020 01/01/2020
01/03/2020 01/03/2020
Silver Supply Chains

Silver production
Silver refineries
Silver financial markets
Gold and Silver
Close **Maximum *Minimum Δ%
Units 1Q 2Q 3Q Max 4Q Max
2019 2020 2020 2020

dollars 1,800 1,930 27.20%

Gold 1,517.27 1,981.27 1,451.55 1,582.84 1,711.76 2,000 2,200***
per once 1,950 1,970 29.83%
dollars 20 25 40.03%
Silver 17.8523 26.2042 11.6418 16.9092 16.3479 30 35
per once 24 30 68.04%
* Lows of the year; ** Highs of the year
-Quarterly expectations refer to the average for the period.

Upward factors for the price of precious metals:

• The possibility that this new wave of infections will increase leading economies to implement
new containment measures.
• That will negatively affect the recovery in global economic growth.
• The political and trade relationship between the United States and China, which could worsen
and endanger the trade relationship.
• To limit the global economic recovery.
• The trade relationship between the United States and the European Union.
• Further negative impact in the global supply chains.
• An increase fiscal and monetary stimulus.
Downward factors:
• That a vaccine or medication is found that will reduce the spread and/or effects of the
coronavirus.
• This would be positive, as it could make the economic reopening uncertain and could cause
a more accelerated economic recovery.
• Type "V" economic recovery.
• That the political and commercial relationship between the United States and China improves.
Industrial Metals
• In view of the pandemic, the commodity market has had atypical movements, which are mainly
reflected in the price of copper.
6,580

43.76%

-25.56%

4,577 5.42%

518

-23.12% -5.59%

452
-16.83%

Source: Bloomberg.
Copper and Steel
Cierre **Máximo *Mínimo Δ%
Unidades 1T 2T 3T Max 4T Max
2019 2020 2020 2020

dólares por
6,350 6,300 2.45%
Copper tonelada 6,149 6,580 4,577 5,534.98 5,364.65 6,650 6,500
6,450 6,400 4.08%
métrica
dólares por
480 500 -10.71%
Steel tonelada 588 596 452 576.51 499.70 495 550
490 525 -14.96%
métrica
* Lows of the year; ** Highs of the year
-Quarterly expectations refer to the average for the period.

Upward factors for industrial metals:

• Further negative impact in the global supply chains.
• An increase fiscal and monetary stimulus.
• That a vaccine or medication is found that will reduce the spread and/or effects of the
coronavirus.
• This would be positive, as it could make the economic reopening uncertain and could cause
a more accelerated economic recovery.
• Type "V" economic recovery.
• That the political and commercial relationship between the United States and China improves.
Downward factors for industrial metals.
• The possibility that the new wave of infections will increase leading economies to implement
new containment measures.
• That will negatively affect the recovery in global economic growth.
• The political and trade relationship between the United States and China, which could worsen
and endanger the trade relationship.
• That limit the global economic recovery.
• The trade relationship between the United States and the European Union.
Expectations

JULY 30 2020 2021

GDP growth -9.50% 5.0%
Inflation (end of period) 3.40% 3.20%
Traditional Public Balance (% of GDP) -3.50% -3.40%
Monetary Policy Rate (end of year) 4.00% 3.00%
IMSS Employment (change December to December) -1,860,000 550,000
Exchange rate (end of year) 24.20 21.30
Current Account (% of GDP) -1.50% -2.00%