The Mexican Economy Moves Up A Gear (PT)

(PT) Walmex, the Mexican division of the retailing US giant Walmart, is enjoying a boom time.

Shares in Walmex, which are listed independently of the main Group, are currently up around 30%. This contrasts with its parent, which has seen its shares drop by around a third. Commentators are quick to point out that although Mexico might be suffering social upheavals and its citizens can sometimes be regarded as gloomy, they do make good consumers.

Already retail sales have increased by over 6% in the first nine months of 2015, compared to less than 1% growth last year. In 2013, growth was non-existent. Walmex is doing particular well from the retail sales growth, having grown its profits over 20% between Q3 2015 and Q3 2014.

The Mexican economy is in recovery stage and coming out of a stagnant period, say economists, but also stimulated by political reforms introduced by the government.

The retail economy has also been helped by the devaluation of the peso against the dollar, which has dropped by about a fifth since mid-2014. This has given Mexicans more buying power, boosted non-oil exports and helped home companies compete against foreign firms. That’s against a low inflation backdrop – the inflation rate was 2.5% in August, which compares well with the Government target of 3% and 4.1% last December. This has helped sustain real wages, which translates to more money in Mexican’s pockets.

The Government’s reforms are stimulating the home economy by encouraging native companies to take-on existing monopolies, and electricity prices have dropped for both business and consumers.

The Government is also tackling a key employment issue. Small firms employ most people in Mexico (some 60%) and because they are small companies, they are exempt from tax and regulation, and therefore not formally employed, which means lower wages. The Government is having some success in moving workers towards a formal status which generally improves their pay and conditions.
Key education reforms are also coming along, after being stalled by the unions, which shows that the Government is willing to take on restrictive working practices.

As for economic growth, the headline figure should be GDP growth of 2.8% for 2015, which is down from the forecasted nearer 4%, but this is explained by an unforeseen drop in oil production and a quieter period for US industrial production. Economists point out that without these two factors, Mexican growth would have hit the forecasted figure. Growth in 2016 is not set to be spectacular say economists, mainly because of continuing weak oil exports, social and political reforms which are not yet firmly in place and a tighter fiscal policy.

Evenso, confidence within the Mexican business community is at a high as bosses say that the future looks as strong. And given the Walmex performance, this might be far from empty rhetoric as Mexican comes out from underneath the US shadow.

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Reference: The Economist, Bloomberg, IB Times.