Mexico's economic gloom hard to crack

As Mexico confronts two years of government austerity, nothing symbolises people's sense of malaise more than the soaring price of eggs.

Unspectacular economic growth, the pain of tax hikes, tumbling production of oil, the economy's lifeblood, and the prospect of government spending cuts amounting to 1.5 per cent of GDP this year and next are all dampening the mood after heady hopes that President Enrique Pena's Nieto's ambitious reforms would put Mexico on a fast-track to prosperity.

But the surge in the price of one of Mexico's favourite foodstuffs underscores the volatility and uncertainty clouding the horizon. Latin America's second-largest economy is the world's biggest consumer of eggs, gobbling a whopping 22kg per head last year, and the antitrust authority is investigating whether a rise in prices, which in some places have doubled in recent weeks, is the result of market rigging.

Marta Lopez, who runs a hole-in-the-wall homestyle food restaurant, Fonda Xochitl, says that meat, chicken, egg and vegetable prices have all risen. She has been feeling the pinch since last year. "I haven't put my prices up, but I'm finding it hard to cover my costs," she says.

She sees little hope on the horizon. "I'm not sure it will get better. A lot of people say it will, halfway through this year. I don't know."

Inflation is under control - creeping just below the central bank's 3 per cent target in early March, but Alberto Ramos, Latin America economist at Goldman Sachs, sees "feeble consumer and business confidence adding headwinds to the ongoing economic recovery".

Things are not unremittingly gloomy: Mexico's economy tends to move in tandem with the US, the destination for four-fifths of its exports, and the outlook there is improving. Mexico's car manufacturing industry and construction sectors are booming and mobile phone and electricity bills are coming down, which the government says is proof that the reforms are already delivering results.

In addition, bank lending is up, and tourism, worth $16bn last year, could also get a fillip from the peso's recent weakness against the dollar and the James Bond effect: part of the latest 007 film Spectre is being shot in the Mexican capital.

As Edna Jaime, head of think-tank Mexico Evalua, puts it: "Unemployment is down, employment is up, but the minimum wage is still low - that helps explain the disconnect between the creation of jobs and the feeling of malaise."

She added: "The tax reform [which took effect last year] was also a blow - I think Mexican families are feeling their income has taken a big hit and that has been reflected in consumption."

Six out of 10 jobs in Mexico are in the informal sector - where workers pay no tax and have no benefits - and the minimum wage is a measly 70.1 pesos ($4.6) per day at best, opening up a massive gulf between the billionaire haves and those working in the country's industrial hubs and the pauperised have-nots elsewhere.

As Salomon Chertorivski, economic development minister for the Mexico City government wrote in Reforma newspaper last week: "In the fourth quarter of 2014, the number of Mexicans with occupations of some sort who could not make it to the fortnightly payday, on their main income, was 54.77 per cent."

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Unfortunately for the government, international oil prices collapsed just as it was preparing to invite private energy investment for the first time in nearly 80 years, spelling lower income for a government that relies on oil to fund a third of its budget and is already grappling with lower output.

The oil price slump has sent its calculations into disarray: Pemex is expected to produce only 2.29m barrels per day this year, after an already disappointing 2.43m last year, and the government is preparing to rewrite its budget for 2016 from scratch, rather than simply adjusting last year's package.

Pemex and the government are shouldering spending cuts of 0.7 per cent of GDP this year and officials are pencilling in further cuts of 0.8 per cent next year, as people brace for expected public sector job losses.

The government still hopes growth of 5 per cent can be reached by 2018, but Mr Pena Nieto's promises have been brought down to earth with a bang. 

His unappealing new motto now is: "Doing more with less."

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