February 6, 2014

A wide gap in views of Mexico's economy

Even as Mexico gets a coveted 'A' rating from Moody's, consumers are feeling rather grumpy over new taxes

The views of Mexico’s economy by ordinary citizens and those living outside the country these days could hardly be more different.

Mexicans are now feeling the impact of a tax overhaul enacted late last year, and it has put them in a grumpy mood. Consumer confidence, as measured by a government index, has fallen to its lowest level in four years.

In January alone, the confidence index fell 6.2 percent and is down 15.5 percent from a year earlier.

Everyone feels the pinch of the new taxes – from the consumer buying a soft drink at the corner kiosk to the millions of Mexicans living near the U.S. border who suddenly saw a 5 percent increase in the value-added tax.

Economists say the sour mood will have a short-term impact on sales of appliances and other durable goods as Mexicans, feeling poorer, rein in their purchases.

But over at Los Pinos and at the Finance Secretariat, government officials are giving each other high fives over a decision by Moody’s to upgrade Mexico to a coveted "A" grade sovereign rating, making Mexico only the second country in Latin America after Chile to earn such a rating.

This will help lower the country’s borrowing costs, and make Mexico more attractive to investors. Moody’s said a gamut of reforms ushered through last year by President Enrique Pena Nieto “will strengthen the country's potential growth prospects…”

“Confidence in Mexico in the world is growing and widening,” Pena Nieto said yesterday.

Now, if only confidence in Mexico by Mexicans themselves would also grow.

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