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Mexico’s Economy: Business Confidence vs. Consumption

Mexico‘s economy is facing a loss of business confidence, but an increase in consumption, highlights an assessment released by The Mexico Equity and Income Fund, Inc.

This occurs in the context of a unique scenario not seen in decades, with a tighter global monetary policy to contain a higher consumer price index.

According to the diagnosis, based on The Mexico Equity and Income Fund Advisor’s report for the Fund’s fiscal year ended July 31, 2022, Mexico’s Gross Domestic Product (GDP) is below pre-pandemic levels.

Their perception includes a worsening of business confidence that delays a return to the 15-year average growth rate of 2.0 percent.

In addition, the slowdown in U.S. economic activity would likely be a pullback factor.

However, the Consumption segment, a 55 percent component of GDP, could weigh in favor of better-than-expected economic growth in 2022.

Specifically, the strength of private consumption ($55.5 billion) is related to remittance inflows, mid-single-digit growth in formal employment and nominal wage increases, a percentage change of 95.6% in the five years to July 2022.

The nominal wage was 98.6 pesos per day in 2017 compared to 172.87 pesos in 2022 (US$4.49 vs US$8.38).

Business confidence

The Fund invests in the Mexican equity market universe. Investing in Mexican securities presents political, regulatory and economic risks somewhat similar to those faced by a re-emerging country and a developing country; and different in type and degree from the risks presented by investing in the financial markets of the United States or any other fairly comparable emerging country in the Latin American region, pertaining to emerging market risk.

Some of these risks may include devaluation and/or appreciation of the Mexican peso exchange rate, greater market price volatility, substantially lower liquidity, controls on foreign investment and limitations on repatriation of invested capital.

Unlike U.S. issuers that are required to comply with GAAP accounting policy standards, Mexican issuers comply with the mandatory regulation of IFRS accounting standards and policies.

 

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