Mexico's Economy Rebounds Outlook Revised Up

Chart 3

Retail Sales Increase in September

The index of real retail sales in Mexico increased 3.6 percent based on a three-month moving average through September (Chart 4). On a month-over-month basis, retail sales rose 2.7 percent in September, the same growth as in August. However, the retail sales index was down 7.0 percent in September relative to December 2019 levels.

Chart 4

Payroll Expansion Continues

Formal sector employment - jobs with government benefits and pensions - rose an annualized 4.3 percent (68,800 jobs) in November, faster than October’s 4.0 percent increase (Chart 5). Year-over-year employment contracted 3.6 percent in November. Total employment, representing 51 million workers and including informal sector jobs, declined 7.6 percent year over year in third-quarter 2020 - far below its 10-year average of 1.9 percent growth. The unemployment rate in October was 4.7 percent, up from 3.6 percent a year earlier.

Chart 5

Peso Gains Ground Against the Dollar

The Mexican currency averaged 20.4 pesos per dollar in November - up 4.4 percent from October - and is up 19.1 percent since April (Chart 6). The peso has depreciated 6.3 percent against the dollar since December 2019. The peso has been under pressure due to increased uncertainty regarding the impact of COVID-19 on domestic and global growth.

Chart 6

Foreign-Owned Government Debt Share Down

The three-month moving average of peso‐denominated Mexican government debt held abroad declined to 21.9 percent, despite an increase to 22.2 percent in November (Chart 7). The extent of nonresident holdings of government debt is an indicator of Mexico’s exposure to international investors and is also a sign of confidence in the Mexican economy.

Chart 7

Inflation Closer to Long-Term Target Rate

Mexico’s consumer price index (CPI) increased 3.3 percent year over year in November, down from 4.1 percent in October (Chart 8). CPI core inflation (excluding food and energy) rose 3.7 percent year over year in November. Banco de México held its key interest rate at 4.25 percent in its December meeting. Central bank policymakers said the pause will provide the necessary room to confirm the current downward trend in inflation.

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