Moody’s Investors Service warned that while consumption in Mexico is recovering from the deep impact generated by the covid-19 pandemic, the stimulus provided by the federal government has been low and a better outlook will depend on the level of employment of real wages.
According to the rating agency, despite the economic recovery, real wages (adjusted for inflation) are contracting and if this decline continues, the outlook for consumption will weaken.
In a document, explained that the underlying inflation indicators (which excludes the prices of more volatile goods and services, such as agriculture and energy) show that inflation is consistently above the central bank’s target.
In particular, rising food and energy prices affect most household budgets in Mexico and wage growth was sustained during the worst phase of the pandemic, but there has been a downward turn in recent months and, as the pandemic progresses, employers may resort to wage cuts.
In addition, Moody’s added, informal sector workers, who earn less than their formal sector counterparts, are also exposed to this risk; thus, the combined effect of nominal wage cuts and higher prices will affect household consumption capacity, especially in discretionary items.
Regarding the vaccination process, the rating agency pointed out that, to date, Mexico has fully vaccinated around 16 percent of its population and although vaccinations are increasing, it is unlikely that Mexico will meet the thresholds of herd immunity for purposes of 2021.
He stressed that the mortality rate is still very high (above 9 percent), well above that of peer countries and the third highest in the world, which points to deficiencies in the Mexican public health system.
Moody’s indicated that the Mexican government’s vaccination program uses CanSino vaccines, Oxford / AstraZeneca, Pfizer / BioNTech, Sinovac and Sputnik V, but the effectiveness of Chinese vaccines is less than that of the others, and the World Health Organization (WHO) has not yet approved the emergency use of Sputnik V and some of the approved vaccines they may require additional doses to boost immunity against new virus variants.
In this context, considers that a decrease in the death rate of covid-19 would contribute to better levels of confidenceThe risks remain high, though, as new variants of the virus continue to spread globally.