Resilient and growing, but with a foggy outlook
CEO Mexico Insights Division at Kantar
Despite a complicated relationship with its neighbor the USA, two major earthquakes and handful of tornadoes in 2017, the Mexican economy still managed to grow. After achieving 2.4 percent growth in 2017, the Mexican economy is forecast to continue growing at rates above 2 percent in 2018.
A strong recovery in external trade led to a vigorous rise in net exports. This was thanks to the accumulated currency depreciation and strengthened US industrial production.
Annual consumer price inflation peaked in August at 6.7 percent following the impact of domestic fuel price hikes and the effects of accumulated currency depreciation. This dampened consumers’ purchasing power by limiting real labor income growth; but monetary policy has reduce the inflationary index so far in 2018, with an increase in interest rates from 3 percent at the end of 2015 to around 7 percent at the end of 2017. These high interest rates should continue into 2018 in order to ensure price stability.
An improved fiscal stance contributed to a revision of the outlook on Mexico’s sovereign credit rating from negative to stable by two of the main credit rating agencies.
Structural reforms are starting to have a positive impact on the economy. Telecommunications reforms led prices for mobile broadband services to fall by up to 75 percent, and the number of subscribers jumped by nearly 50 million between 2012 and 2016. Energy reforms have boosted private investment by nearly $80 billion.
Despite the resilience and growth of the Mexican economy, there are still some factors threatening to create turbulence and cloud the road ahead:
- NAFTA renegotiations are clouding Mexico’s outlook and increasing uncertainty levels about the future of the trade agreement. Further complicating this is the proximity of the presidential elections in Mexico (July 2018) and US mid-terms (November 2018).
- Moreover, limiting the flow of US dollars into the Mexican economy could have a huge impact on Mexicans via gas prices, and on 43 percent of all the food consumed by Mexican households, which is now imported.
- Direct investment and confidence will degrade unless Mexico improves its institutional structure, the functioning of the rule of law, and pursues an anti-corruption agenda.
A STRATEGY FOR BRANDS
We have seen that even when sales decrease, the impact on brand value can be softened by strengthening brand contribution. At the same time, we have almost never seen brand contribution grow at a time when brands stop investing.
The message is clear: even when the topline is struggling, building brands and investing in them can pay off.
These types of scenarios are the new normal. No more ducking our heads while we await better conditions. It’s under these conditions that new businesses must thrive and plan ahead.
Continue investing in customer satisfaction, retention, innovation and brand differentiation.
The brands that do will live longer and be stronger.