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Media 042814 FNS-economy

Monday, April 28, 2014

Are Current Policies creating New Economic Crises in Mexico?

Frontera NorteSur

Only a few months ago, the Mexican economy was portrayed in the international press as poised for take-off as the next emerging global powerhouse. Stories appeared of a vibrant middle class primed to join the free-spending club of consumers.

But as the spring of 2014 progresses, Mexico's economy is stumbling. Dampening projections of high growth, economic indicators show sluggish or declining consumer spending and increased unemployment.

For example, the latest numbers from the National Institute of Statistics, Geography and Informatics (INEGI) reported that February's wholesale and retail sales dropped 1.16 percent and 1.27 percent, respectively, in comparison with January's figures.

Consumer electronics, clothing, shoes and department store items were among the commodities taking significant hits in the second month of the year. The job market also chalked up disappointing results. March's official tally of the unemployed came in at 4.8 percent of the economically active population, up from 4.51 percent in March 2013.

In April the number of informal sector workers, who typically don't pay taxes or enroll for social security benefits, rose from 58.03 percent of the economically active share of the population to 58.42 percent.

Economic analysts and business leaders variously blamed the state of the economy on new taxes, a slow-down in manufacturing exports to the United States, bouts of bad weather, and increases in food prices.

"There is a very strong impact on the level of services and consumption, as well as employment, said Juan Manuel Hernandez Niebla, president of the Tijuana Business Coordinating Council. "Once again, we have to be clear that the tax reform is not working." Hernandez later added that the local service and retail sectors were reporting 15-20 percent drops in earnings.

Jose Luis Contreras, vice-president of the National College of Economists of Mexico, speculated that a new economic crisis could even be on the horizon if current economic policies continue.

According to Contreras, Mexican capital is fleeing the country for "tax havens" like Canada and Panama, while previous policies favoring the financial sector at the expense of the productive sector have carved structural imbalances into the economy.

"We have three trimesters of growth very close to zero," Contreras said. "This is not growth, and it is fomenting a series of problems like unemployment, which is increasing along with a public policy that has not produced what was expected."

In April, the International Monetary Fund lowered expectations for Mexico's 2014 growth rate to the 3 percent range. Up notably from the 1.1 percent growth registered in 2013, the rate nevertheless falls short of the 3.9 percent growth experienced during 2012. The central Bank of Mexico had predicted growth will land between 3 and 4 percent in 2014, but could revise its estimate in a report due out next month.

Warning of troubling economic signs, analysts for Banamex, the Mexican affiliate of Citigroup, tempered their outlook with the possibility of improvements after the second half of 2014, when increased exports and greater public spending could boost the economy.

Cars and limes are two bright spots. Now considered the eighth producer of light vehicles in the world, Mexican production in the sector is projected to jump 27 percent from 2014 to 2017, bolstered by $12 billion in investments during the past four years. Accounting for 3.5 percent of Mexico's Gross Domestic Product, the automotive sector employs nearly 15 percent of the country's industrial workers.

The rate of inflation was slowing in the first two weeks of April, with price increases down 0.19 percent from the previous two weeks. An astronomical spike in the price of staple limes, which soared by as much as 1,000 percent in some regions of the country, was credited for pumping up inflation in the food sector earlier this year.

Providing welcome relief to consumers, limes in the border city of Ciudad Juarez, which fetched up to 60 pesos per kilo at supermarkets about one month ago, were reported selling for 16 pesos a kilo at markets during the third week of April.

April also saw price decreases for onions, watermelons, bananas, potatoes and Serrano chiles, though the cost of tomatoes went up.

The lime crisis struck north of the border, where an estimated 97 percent of the tangy fruit sold comes from Mexico. Prices for the so-called "green gold" quadrupled or more, even leading one U.S. media outlet to note that lime prices exceeded the cost of black gold as sold per barrel.

In New Mexico, some establishments discontinued serving limes or only served them at customer request. Prices in the Land of Enchantment also began to ease in recent days, with one Albuquerque supermarket that previously sold limes for $4.49 per pound slashing the price to .99 per pound.

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Sources: Marketwatch.com, April 25, 2014. La Jornada, April 24, 2014. Article by Juan Antonio Zuñiga. El Sol de Tijuana, April 23, 24 and 25, 2014. Articles by Juan Guizar and Feliciano Castro Loya. Proceso/Apro, April 23, 2014. Article by Carlos Acosta Cordova.  Norte/El Universal, April 22, 2014. El Diario de Juarez, March 29 and April 24, 2014. Articles by Cinthya Avila and El Universal. Juarez-El Paso Now, April 2014. El Pais, April 8, 2014. Article by Sandro Pozzi. El Economista/Reuters, March 29, 2014.

Reprinted with authorization from Frontera NorteSur, a free, on-line, U.S.-Mexico border news source; translation FNS.

Frontera NorteSur (FNS)
Center for Latin American and Border Studies
New Mexico State University
Las Cruces, New Mexico

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