Eonomics: February data point to future challenges
Even as some branches of industrial and service activity continued to pare their losses from the lows of 2020 and the trend remains toward a reopening of activity, GDP contracted -4.3% in the fourth quarter (and -8.2% for 2020), with health the only service sector to show growth. We expect a similarly negative GDP report for the current quarter.
Recent labor market shifts could act as a brake on the prospects for any major recovery in jobs or the broader economy. The country’s relatively moderate jobless rate reflects the extent to which millions have either been sidelined into disguised unemployment and millions more pressured from the formal economy into increasingly precarious work and into the ranks of the underemployed. These developments have greatly reduced the earned incomes of Mexican households and consumer spending, as evidenced by negative retail and wholesale results.
Inflation has risen in recent weeks above what Banxico has forecast for 1Q21 but not significantly. In this context, the wage increases arising from contract negotiations, which have outpaced inflation each and every month, and the cumulative effect of an unprecedented three-year sting of major minimum wage hikes are much more likely to slow the recovery in formal employment over the medium term than constitute an additional short-term source of inflation pressures.
Public finance deteriorated moderately in 2020 as the current administration continued to focus on austerity policies combined with very limited gestures toward fighting the coronavirus pandemic and the severe toll it has taken on household incomes and the economy at large.
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