| | |  Business News | February 2009 
Mexican Consumer Boom Wanes as Downturn Bites
 Robert Campbell - Reuters
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| | The slump is forcing stores all over the country to cut prices to attract customers, even in the capital's swanky Polanco district, home to luxury jewelers and designer boutiques. | |
Mexico City - After years of easy spending fueled by cheap loans and a stable economy, Mexican consumers are being careful with their pesos through fear the economic crisis will eat away at hard earned gains.
Consumer spending soared in Mexico as the country reaped the rewards of free trade with the United States from the mid-1990s and the central bank kept inflation low.
The boom turned Wal-Mart's local unit (WMT.N) (WALMEXV.MX) into the nation's biggest private employer as it opened supermarkets even in remote towns and the once-frequent financial crises appeared to be a thing of the past.
But now with the United States mired in a deep recession and Mexico's export-dependent industries slashing jobs to cope with the sudden drop in demand, consumer confidence in Mexico is sliding and threatens to push the country further into recession.
"Everyone I know is cutting back on big purchases and trying to save money. I wanted a new flat screen television but I think I'm going to wait," said Enrique Vargas, a Mexico City office worker.
The spreading worry sent Mexico's consumer confidence index to a record low in January. Retail sales at shops open at least 12 months rose an anemic 1.2 percent in nominal terms in January, well below the rate of inflation.
The slump is forcing stores all over the country to cut prices to attract customers, even in the capital's swanky Polanco district, home to luxury jewelers and designer boutiques.
Sales of big ticket items, such as automobiles, have fared worse. Car sales slumped 28 percent, dealing another blow to Mexico's important auto industry, which was already reeling from plummeting demand from the United States for Mexican-built models.
GRIM NEWS
The grim economic news has fed a steady decline in government and private forecasters' expectations for the Mexican economy.
The central bank became more pessimistic in its outlook in late January, forecasting that the economy would shrink as much as 1.8 percent. The local unit of Citigroup (C.N) said last week it expected the economy to slide 2.4 percent this year due to the worsening picture for the non-manufacturing sectors of the economy.
Making matters worse for Mexican consumers, banks have pulled back from lending. That makes it more difficult to buy cars and appliances on credit, even though Mexico's mostly foreign-owned big banks are well capitalized and avoided the subprime mortgage disaster that has hurt institutions around the world.
"I was going to open a restaurant on this piece of land I have but everything looks more expensive and now we can't get a loan," said Julio Camacho, a resident of the capital.
Bank lending to consumers has been declining since September, marking the end of a credit boom that saw consumer loans expand at explosive rates of around 50 percent a year at their peak in 2005 and 2006.
The decline is fueling concern among analysts who believe it could worsen the downturn.
"Installment credit at reasonable rates was at the forefront of the growth of the Mexican consumer," said Enrique Alvarez, senior economist at IDEAGlobal in New York.
However, banks have become worried that the massive growth in consumer credit in recent years may have been overdone. Banorte (GFNORTEO.MX) scrapped its popular 20- and 30-year mortgages in January and other institutions are running television ads encouraging consumers to be responsible with credit.
(Editing by Tom Hals) |
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