The Mexican Institute of Financial Executives (IMEF) has affirmed that its IMEF index, during its twenty years of existence, has served as a good measure of the situation experienced by the industrial and non-industrial sectors, and its result indicates what is to come.
The IMEF is a diffusion index that assesses the economic environment based on a survey of five qualitative questions answered by managers from a sample of 400 companies. It is designed to help forecast the direction of manufacturing and non-manufacturing activity in Mexico and, based on the expected development of these sectors, to infer the likely development of the economy as a whole in the short term.
“I think over the 20 years, if you study the index carefully, it has been quite accurate, it has predicted very well when there is a recession, when there is no recession, when we are going out, when the economy is weakening,” said Jonathan Heath, founder of the IMEF Index and vice chairman of the IMEF Index Committee.
At a press conference marking the 20th anniversary of the IMEF, he noted that in times of volatility, such as those during the Covid-19 pandemic, the IMEF reflected in a very clear way what was happening, while before when the financial crisis broke out in 2008, it predicted a recession.
The IMEF ranges from 0 to 100 points, with 50 representing the threshold between expansion (greater than 50) and contraction (less than 50) in economic activity. When the index is above the threshold, an increase is interpreted as a sign of faster future expansion; when the index is below the threshold, an increase is interpreted as a sign of slower future contraction.
However, the indicator does not provide specific information about the magnitude of expected changes.
Furthermore, Jonathan Heath recognized that the IMEF is not the best tool for measuring the impact of corporate relocation to North America, a phenomenon known as near-term relocation, since the questions asked of managers do not reflect investment levels, but are tied to the behavior of new orders, product demand, production, employment in the company and product deliveries, as well as inventory levels.
But he stressed that it is an indicator that depicts the current situation that companies are going through, and based on the responses, it is concluded what the behavior of economic activity will be, and the biggest challenge is to ensure that the sample of companies participating in the survey is representative.
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