Mexico’s economic recovery has spice in the tail


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Mexico City (AFP) – Latin America’s second-largest economy is recovering from its worst crisis in decades, but the rising cost of living means many Mexicans like Reynaldo Perez are struggling to get by.

The 54-year-old makes a living from valet parking tips for restaurant customers in Mexico City, the epicenter of the pandemic in one of the world’s worst-hit countries.

“After the expenses, it’s just enough to get by, without the luxury of hanging out with my family,” said Perez, who overcame a bout of Covid-19 last year, spending two weeks at the hospital.

Still, he feels lucky to even have a job. Several other businesses nearby have gone bankrupt.

“They couldn’t survive the hit” of months of pandemic restrictions and a lack of customers, Perez said.

Its story reflects the challenges facing the Mexican economy, whose post-pandemic recovery has a sting in the tail: rising prices for food and other basic necessities.

Inflation in Mexico hit 6.24% in the 12 months to October, more than double the central bank’s target of around 3%, and the highest in nearly four years.

Like many countries, Mexico is grappling with the impact of rising energy and raw material costs, as well as global supply chain bottlenecks.

At the same time, Mexico’s economy – the second largest in Latin America, after Brazil – has yet to regain its pre-pandemic size.

Gross domestic product (GDP) is expected to rise 6.2% this year, according to the Bank of Mexico, not enough to fully reverse an 8.5% drop in 2020.

Interest rates on the rise

Indicators such as consumption, employment, investment and tourism remain below pre-pandemic levels, said Gabriela Siller, head of analysis at BASE financial group in the northern city of Monterrey.

“GDP won’t fully recover until 2023, and per capita not until 2027,” she said.

Remittances from Mexicans living abroad have been a lifeline for millions of families, with more than $37 billion sent between January and September.

In an attempt to stem inflation, Mexico’s central bank on Thursday announced a fourth straight interest rate hike to 5.0%.

The move highlights a divergence between central banks in Latin America and those in the United States and much of Europe, where policymakers are reluctant to stifle an economic recovery.

Mexico’s annual inflation hit 6.24% in October, more than double the central bank’s target ALFREDO ESTRELLA AFP

The central banks of Brazil, Chile and Peru have also raised their benchmark interest rates in recent months to fight inflation, unlike the US Federal Reserve and the European Central Bank.

Even after several increases, however, Mexico’s benchmark lending rate remains below the level of inflation, resulting in what economists call negative real interest rates.

One important factor is that Mexicans tend to have relatively low levels of debt, said Benito Berber, an economist at investment bank Natixis.

“People don’t borrow as much, or banks don’t lend to them,” he said, so rising interest rates affect them less directly.

More than half of economically active Mexicans work in the informal economy and have limited access to banking services.

This limits the options for people like Jesus Moreno, who has seen the price of the tomatoes he sells jump by more than 10% in just one month amid tight supply.

“What are you doing? Just buy what you can,” the 30-year-old market vendor said.


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