manuel sanchez : forces and threats to mexico ’ s economic recovery remarks by mr manuel sanchez, deputy governor of the bank of mexico, at the united states – mexico chamber of commerce, new york, ny, 28 september 2012. * * * it is a great honor to be back at the northeast regional chapter of the united states – mexico chamber of commerce. thank you for inviting me to share some thoughts with you on the recent evolution and outlook of the mexican economy. since i was here over a year ago, the pace of economic recovery in mexico has strengthened, even surprising on the upside, slightly exceeding mainstream forecasts. however, some risks that i exposed then still remain today, notably those related to the world economy, while others associated with domestic concerns have surfaced. in this brief overview of mexican economic conditions, i will focus on both old and new issues, including those regarding inflation and monetary policy in mexico. as always, my remarks are entirely my own responsibility and do not necessarily reflect the views of the bank of mexico or its governing board. current economic rebound since the middle of 2009, mexico has been experiencing a process of continuous economic recovery. three characteristics of the upswing are worth mentioning. first, the rebound has proceeded at rates that have been roughly twice as high as those observed during the first decade of the century, before the global crisis. 1 obviously, high growth is partly explained by adjustment from the deep recession that the country suffered three years ago in the aftermath of the global financial crisis. however, even after taking the correction into account, recent expansion is noteworthy. specifically, on average during the first half of this year, gdp increased 4. 3 percent in annual terms, which has contributed to bringing the economy back to the level of its long - term trend, as reflected by conventional estimations that the output gap has closed. this progress contrasts with economic underperformance relative to historical standards in many developed nations and, in particular, the united states, mexico ’ s main trading and investment partner. second, the current upturn has been balanced, in the sense that it has included all key components of aggregate demand, notably, domestic fixed investment and consumption. capital formation has shown substantial rates of growth, surpassing those of consumption, as typically occurs over business cycles. nevertheless, and despite recent signs of deceleration, during the last two years consumer spending has been increasing at a fairly stable annual rate, close to 4 percent. in a structural sense, the reactivation of economic activity

markets represented only 9 % of the total financing of listed companies. obstacles hindering mexico's equity market development are extensive, but i will refer to some of the most relevant. one of the main problems of the low and limited access by the retail sector, which represent more than 90 % of the enterprise sector in mexico, is investors'notion that going public is costly. they consider that the cost will not be compensated for the risk of losing control of the company and the risks that may come with increased transparency and disclosure. therefore, investment funds are highly concentrated in fixed income and liquid assets. on the issuers'side, weak corporate governance still prevails in addition to slow public placement processes. companies instead prefer to seek alternative sources of financing other than those offered by the stock market, such as private equity funds instead of a public offering which are more attractive in terms of regulation and corporate governance. but on the other hand, mexico is the latin american leader in the financial technology start - up ecosystem, with 238 companies, followed by brazil ( 219 ), colombia ( 124 ), and chile ( 75 ). it holds second place in hosting unicorns, which surpass one billion dollars in value without being listed on the stock market, both in number and valuation, only after brazil. this data emphasizes the tremendous potential of the mexican market. there is also a growing notion of listing advantages over reputational enhancement and increased access to capital. mexican financial authorities have given increasing importance to the development of the equity market. the concession of a new stock exchange biva, and the approval of significant reforms that aim to strengthen companies'ecosystem in the country speak for this. more actions toward strengthening the market have been implemented, among others : one : enabling access to the market for retail investors by reducing transaction costs and simplifying access to digital platforms, increasing the opening of savings accounts, and improving financial education. two : creating a bidirectional market to attract new investors by means of hedge fund schemes or similar investment vehicles, development of securities lending, and increasing coverage of market and information assessment. three : diversification of investors'profiles via institutional investment in specialized mutual funds, optimization of capital cost according to the financial instruments, and alignment of brokerage models toward market needs. four : raising private capital and entrepreneurship by authorizing specialized stock exchanges with specific regulation, like regulatory sandboxes. five : removing access barriers for new and existing issuers by simplifying capital listing for smes.