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 News Around the Republic of Mexico | December 2007 
Mexico May Avoid Worst of U.S. Economic Slowdown
 Luis Rojas Mena - Reuters
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| | The latest economic data suggests a slowdown in the world's largest economy might just be around the corner. |
Mexico City - The last time the U.S. economy hit a big snag, Mexico slipped into a recession that decimated its industrial sector and cost hundreds of thousands of jobs.
But six years later, expanding consumer credit, big spending by the government and more competitive exports will likely keep Mexico's economy rolling even if the U.S. slips into another recession, analysts said.
The U.S. economy grew nearly 5.0 percent in the third quarter, but appears to be losing steam as the downturn in the housing market deepens. A growing number of economists warn a U.S. recession could be imminent.
While Mexico would certainly suffer from a slowdown north of the border, some economists say U.S. manufacturing will not take as big a hit as it did in the 2001 U.S. recession, providing some cover for suppliers at Mexican factories.
"This time things are different. The pain in Mexico will be tempered," said Luis Arcentales, an economist at Morgan Stanley in New York.
Most Mexico watchers see the economy growing at least 3.0 percent next year.
That is far from the levels of growth needed to fight rampant poverty, but not bad considering 80 percent of Mexican exports go to the United States, where Morgan Stanley sees a full-blown recession in 2008.
Part of the reason for this optimism is the rebirth of credit in Mexico, which completely dried up in the Tequila Crisis of the mid-1990s. Thanks to a decade of fiscal prudence and an independent central bank, inflation and interest rates have fallen dramatically.
That has fueled an explosion in home, business, and consumer lending that has allowed Mexicans to spend more on cars, televisions and beach vacations. Analysts see credit growing less next year, but still expanding.
"The economy has developed its own motors of growth," UBS economist Guillermo Aboumrad said in a recent report.
PUBLIC WORKS
Also, President Felipe Calderon pushed a landmark reform through Congress in September to boost tax collection and increase public spending beginning next year.
Calderon recently launched an ambitious plan to throw $295 billion of public and private money into infrastructure such as highways and ports by 2012, creating 800,000 jobs along the way.
"This will seriously dampen a possible slowdown from the United States," said Omar Borla, an economist at Dresdner Kleinwort.
A weaker peso, falling in tandem with the dollar, has also helped Mexico by making exports cheaper to Europe and South America.
Mexico now sends 80 percent of its exports to the United States, down from 90 percent seven years ago.
Volkswagen's plant in the central Mexican state of Puebla has sold more cars to Europe than to the United States this year for the first time ever.
"The exchange rate has been a big help," said company spokeswoman Consuelo Minutti.
(Additional reporting by Jason Lange and Noel Randewich; editing by Clive McKeef) |
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