World Economy

Mexico Economic Gloom Hard to Crack

Mexico Economic Gloom Hard to CrackMexico Economic Gloom Hard to Crack

As Mexico confronts two years of government austerity, nothing symbolizes people’s sense of malaise more than the soaring price of eggs.

Unspectacular economic growth, the pain of tax hikes, tumbling production of oil, the economy’s lifeblood, and the prospect of government spending cuts amounting to 1.5 percent of gross domestic product this year and next are all damping the mood after heady hopes that President Enrique Pena’s Nieto’s ambitious reforms would put Mexico on a fast-track to prosperity.

But the surge in the price of one of Mexico’s favorite foodstuffs underscores the volatility and uncertainty clouding the horizon. Latin America’s second-largest economy is the world’s biggest consumer of eggs, gobbling a whopping 22kg per head last year, and the antitrust authority is investigating whether a rise in prices, which in some places have doubled in recent weeks, is the result of market rigging.

Marta Lopez, who runs a hole-in-the-wall homestyle food restaurant, Fonda Xochitl, in Mexico City, says that meat, chicken, egg and vegetable prices have all risen. She has been feeling the pinch since last year. “I haven’t put my prices up, but I’m finding it hard to cover my costs,” she says.

She sees little hope on the horizon. “I’m not sure it will get better. A lot of people say it will, halfway through this year. I don’t know.”

Inflation is under control — creeping just below the central bank’s 3 percent target in early March, but Alberto Ramos, Latin America economist at Goldman Sachs, sees “feeble consumer and business confidence adding headwinds to the ongoing economic recovery”.


Things are not unremittingly gloomy: Mexico’s economy tends to move in tandem with the US, the destination for four-fifths of its exports, and the outlook there is improving. Mexico’s car manufacturing industry and construction sectors are booming and mobile phone and electricity bills are coming down, which the government says is proof that the reforms are already delivering results.

In addition, bank lending is up, and tourism, worth $16b last year, could also get a fillip from the peso’s recent weakness against the dollar.

As Edna Jaime, head of think-tank Mexico Evalua, puts it: “Unemployment is down, employment is up, but the minimum wage is still low — that helps explain the disconnect between the creation of jobs and the feeling of malaise.”

She added: “The tax reform [which took effect last year] was also a blow — I think Mexican families are feeling their income has taken a big hit and that has been reflected in consumption.”

Six out of 10 jobs in Mexico are in the informal sector — where workers pay no tax and have no benefits — and the minimum wage is a measly 70.1 pesos ($4.6) per day at best, opening up a massive gulf between the billionaire haves and those working in the country’s industrial hubs and the pauperized have-nots elsewhere.