Mexico’s robust consumer emerges as a bright spot in a weak economy

MEXICO CITY, May 20 (Reuters) – All is not well for Mexico’s economy as it struggles with high annual inflation and slow economic growth for two decades, but consumption levels have now hit the pre-pandemic levels in Latin America’s second-largest economy.

Spending surged as Mexicans living abroad sent a record $12.5 billion in remittances home in the first quarter, tourism picked up, pandemic restrictions and infections eased eased, while the labor market remained strong.

As a result, suppliers big and small have reaped the benefits.

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Alicia Doreintes Gerardo, who runs a fruit stand in downtown Mexico City, says sales volumes have improved “little by little” over the past three months, despite fruit price inflation doubling.

Fitch Ratings reported on Tuesday that consumption was one of the biggest strengths of the Mexican economy, despite various headwinds.

“Consumption has reached pre-pandemic levels, benefiting from the easing of mobility restrictions, an improving labor market and relatively strong remittances,” Fitch said in a note confirming its “BBB- for Mexico’s sovereign debt.

Rising consumption translated into strong quarterly results at large supermarket chains like Walmart de Mexico (WALMEX.MX) and its smaller counterpart La Comer (LACOMERUBC.MX), which reported year-on-year increases in store revenue comparable to Mexico by 9% and 7.3% respectively last month. Read more

Service companies are also seeing improved demand. Restaurant operator Alsea (ALSEA.MX), which operates local branches of Domino’s and Starbucks, saw net sales rise 49% year-on-year in the first quarter.

Alsea’s chief financial officer, Rafael Grosskelwing, noted that the second quarter got off to a good start, with Easter week revenue climbing a fifth from the comparable pre-pandemic weekend of 2019.

Private consumption in Mexico increased by 1.3% in seasonally adjusted terms in February compared to January, exceeding April’s monthly inflation rate by 0.54%, according to the most recent figures published by the Mexican statistical agency INEGI.

Adrian de la Garza, chief economist at Citibanamex, said the consumption data came as a “surprise” and exceeded expectations.

Citibanamex now expects Mexican consumption to grow 2% in total in 2022, matching the monthly growth rate seen so far this year.

Retailers say the consumer push is being felt across the country.

“We have a very, very good performance. Basically, all [through] in the country, we are seeing a recovery in the trend of our same-store sales,” the chief financial officer of the Mexican supermarket chain Soriana told analysts recently.

But not everyone is impressed with the Mexican consumption numbers, including Nikhil Sanghani, Latin American economist at Capital Economics, who said “it’s not going as badly as expected, but it’s not a dazzling recovery”.

“Consumption is not falling like in Colombia and Chile, but also [Mexico] never reached their strength in the first place,” Sanghani added.

Regional headwinds are also looming. Rate hikes in the United States could reduce the flow of remittances to Mexico and strict lockdowns in China could worsen supply chain disruptions to Mexico’s huge manufacturing base.

Yet unlike China, Mexico is open for business as the pandemic subsides.

“We’re at our peak, the cafe is overflowing with people wanting to hang out,” said Erik Belmonte, the manager of WO Barra de Cafe, a cafe in an upscale neighborhood in Mexico City.

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Reporting by Isabel Woodford; Editing by Anthony Esposito and Nick Zieminski

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