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 Business News | April 2008 
Mexico Economy: Sunny Today, Cloudy Tomorrow
 Diego Cevallos - Inter Press Service
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Mexico City - So far, the Mexican economy has not fallen prey to the ills affecting its principal trading partner, the United States, and is surviving internal political tensions arising from government initiatives to reform the state-owned oil company. But conditions could deteriorate in the second half of the year.
Indicators of industrial growth, bank credit, employment, domestic consumption, exchange rates and investment in capital goods were all rosier than expected in the first few months of this year, according to analysts.
In contrast, there has been a moderate decline in remittances received from Mexican migrants in the United States, and in exports of manufactured goods.
Prophecies of doom and gloom for Mexico because of the slowdown in the U.S. economy have so far not been fulfilled, university professor and business consultant Ángel Vega told IPS.
For the last two weeks, Congress has been occupied by the leftwing opposition, which has blocked legislative activity. With regard to the potential economic impact of this situation, Vega said "the markets have still not looked in that direction."
The leftist Party of the Democratic Revolution (PRD), the main opposition party, warns that its current protests may expand into a social uprising if Congress approves reforms of the state oil sector, which it regards as akin to privatisation.
While lawmakers busy themselves with the oil issue, the government of conservative President Felipe Calderón and most economic players are closely monitoring the financial pulse of the United States, on which Mexico is heavily dependent for trade.
The International Monetary Fund (IMF) predicts that economic growth in the United States will be barely 0.5 percent this year and 0.6 percent in 2009.
Mexico is the Latin American country that is most threatened by the U.S. slowdown, according to the IMF, the Economic Commission for Latin America and the Caribbean (ECLAC) and other multilateral bodies.
In the near future, especially after July, the situation in Mexico could become more complex, said Enrique Quintana, a columnist for the newspaper Reforma.
The Calderón administration’s strategies designed last year to cope with the U.S. slowdown were based on the premise that the U.S. economy would emerge from the doldrums in 2009, with 2.3 percent growth that year, he said.
Officials in Mexico have implemented an aggressive programme of public infrastructure works to stimulate economic activity, and they forecast a growth rate of 2.8 percent in 2008, half a percentage point less than in 2007. But according to the IMF, gross domestic product (GDP) will grow by no more than two percent this year.
However, most analysts estimate that economic indicators due in May will show first quarter growth of about four percent.
The Mexican economy may experience its lowest point in the second half of 2008 and the first half of 2009, Quintana warned.
Vega said that Calderón’s "anti-cyclical" strategy presupposed that the problems in the United States would begin to be solved in 2009, "but that’s not going to happen, so difficulties might arise just at the most sensitive time."
Mid-term legislative elections will be held in Mexico in July 2009. If the economy is stumbling at that point, it is likely that the governing National Action Party (PAN) will not perform well at the ballot boxes, and then "the government’s tasks will become more difficult," Vega said.
According to a preliminary agreement between lawmakers of all political parties, debates will take place in different forums from May 12 to Jul. 22 to discuss reforms to PEMEX, the state oil monopoly.
In spite of soaring international crude prices, PEMEX is in deep crisis because of diminishing reserves and lack of funds for investment, because its profits go largely into government coffers to fund the state apparatus.
In Vega’s view, unless the forthcoming debate is carried out with at least "a modicum of civility," the development of Mexico’s economy may be severely affected.
The energy debate will coincide with the tightest economic squeeze in the United States.
Up to Mar. 15 this year, job creation had increased by 4.9 percent. In January and February bank credits to businesses rose by 31 percent, and in January general industrial activity grew by 3.1 percent.
Construction grew by 12 percent in January and the automobile industry expanded by 20.4 percent in the first two months of the year, while purchases of capital goods increased by 40 percent in the same period.
Supermarket sales increased by between six and eight percent from January to March, in spite of shortages of some basic foods due to the global price hikes of commodities like maize, rice, wheat and soybeans.
Inflation, interest rates, exchange rates and other indicators have experienced little or no change.
In 2007, Mexico’s foreign trade reached a historic record of 555 billion dollars, with exports worth 272 billion dollars and imports of 283 billion dollars. More than 80 percent of this trade was with the United States.
In addition to their strong trade links and the interconnected production chains of both countries, which share a 3,200-kilometre border, the United States is the main source of foreign investment in Mexico.
In its neighbour to the north, Mexico also has a safety valve for some 500,000 people a year who emigrate to the U.S., reducing the pressure of unemployment at home. |
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