New changes boost consumer confidence and sales, but retailers remain skeptical
After beating out Ricardo Anaya of the PAN party by more than 30% of the vote, Mexico’s first leftist president in decades, Andrés Manual López Obrador—more commonly known as AMLO—was sworn into office on December 1, 2018, signaling the people’s desire for real change against Mexico’s status quo and ruling party.
Despite a devalued peso that has affected consumers’ purchasing power, many Mexicans feel much more optimistic about their future now more than ever.
As evidenced by The Conference Board’s Global Consumer Confidence Index in collaboration with Nielsen, Mexico saw Latin America’s largest increase in consumer confidence.
By the end of Q3 2018, consumer confidence reached 100 points, up 9 points from the same period last year. This was also 10 points higher than the regional average of 90 points.
In similar fashion, eMarketer’s latest estimates for the country’s retail industry reflect the same optimism shared by both consumers and economists alike. As Latin America’s second largest retail market after Brazil ($664.44 billion), retail sales in Mexico will increase by 6.3% by the end of next year, amounting to $427.20 billion.
Retail sales will continue to see consistent and healthy growth rates throughout the end of the forecast where we expect them to surpass the half-trillion mark ($504.02) for the first time in 2022.
But not everyone is happy about the changes that lie ahead.
In contrast, the retail industry has viewed an AMLO victory negatively, according to Amanda Bourlier, senior research analyst at Euromonitor International, in a company blog post.
“Retailers that depend heavily on foreign imports or have significant foreign currency debt—especially those with primarily or exclusively domestic operations—are vulnerable in the event the peso devalues during AMLO’s presidency,” she said.
However, if AMLO is in fact able to turn his campaign promises into reality—reduced crime, less corruption and a successfully renegotiated and signed NAFTA deal—they would greatly benefit Mexico’s retail sector.
The new deal would allow for the further expansion of the Mexican, Canadian, and US economies and could increase trade by up to 4% among them, according to the International Monetary Fund (IMF). This would involve the elimination of tariffs, a 1% increase in commercial efficiency, a 25% reduction in trade services inefficiencies, among other factors.
Although the newly negotiated NAFTA was signed last week during the G20 Summit in Buenos Aires, Argentina, it still needs to be ratified by legislators in all three countries.
With Democrats set to take over the US House of Representatives in January 2018, it remains to be seen whether or not the deal will come to a vote in Congress before yearend while Republicans maintain control of the House.