| | |  Business News | October 2008 
Mexico Could Slip Into Recession on Exports, Credit
 Lizbeth Diaz & Jason Lange - Reuters
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| | Mexican President Felipe Calderon (centre), the Secretary General of the Organization of American States (OAS) Jose Miguel Insulza (left) and Mexico's General Attorney Eduardo Medina Mora are seen in Mexico City. Calderon proposed a 53-billion-peso (4.3 billion dollar) emergency plan to boost infrastructure spending after the Central Bank moved to prop up the peso. (AFP/Ronaldo Schemidt) | | |
Tijuana/Mexico City - Mexico could fall into a recession because trouble in the U.S. economy is hitting demand for its exports and a global credit crisis is putting strain on companies, analysts said.
The country's manufacturing exports are contracting, its currency is falling like a stone, and companies are beginning to report problems related to panic-stricken credit markets.
In Mexico's factories near the U.S. border, companies are laying off workers because of falling orders from the United States, where the economy is slowing due to a housing market meltdown and a grinding 15-month-long financial crisis.
"Where I used make 10,000 pieces with 10 people, now I'll have to do it with nine," said Saul Garcia, who runs Kyocera Mexicana's copy machine factory in Tijuana near the border with California.
Employment in manufacturing fell 1.9 percent in July.
Mexico's economy depends heavily on the spending habits of American consumers, who buy about 80 percent of Mexican exports.
"It's safe to say Mexico in our view is entering into a recession at the end of this year," said Gray Newman, an economist for Latin America at Morgan Stanley.
The country's manufacturing exports fell in August for the first time in five years, down 3.8 percent from a year earlier.
The government late Wednesday slashed its growth forecast for 2009 to 1.8 percent from 3 percent and some economists still see a chance of Mexico avoiding recession in 2009 but suffering from weaker growth.
CREDIT SHOCKWAVES
Making the picture even bleaker, signs that the international credit crisis is infecting Mexico's corporate finances have sent shockwaves through Mexican markets.
Mexican supermarket firm Comercial Mexicana (COMEUBC.MX: Quote, Profile, Research, Stock Buzz) has said it is having trouble with its foreign currency debt.
Cement giant Cemex (CMXCPO.MX: Quote, Profile, Research, Stock Buzz) (CX.N: Quote, Profile, Research, Stock Buzz) warned on Thursday the current value of its derivatives position had fallen to negative $500 million from positive $100 million at the end of September because of market volatility.
Mexican companies that need steady supplies of dollars use derivatives like options contracts to hedge against future fluctuations in the value of currencies.
Credit worries have compounded losses in the peso MEX01, which has slid more than 10 percent this week and has posted its biggest losses since the 1995 Tequila Crisis.
Dramatic changes in the value of a currency can wreak havoc on a country's economy, making it harder for companies to plan and dissuading investment.
The central bank has warned several times this month that tightening credit conditions will weigh on the economy.
Rapid depreciation also makes imports dearer, though the central bank has played down fears this could stoke inflation.
"As long as this crisis doesn't stop, it will have very big repercussions on Mexico's economy ... A recession is likely," said Bertrand Delgado, an economist at IDEAglobal in New York.
Authorities are scrambling to push back. President Felipe Calderon announced an economic stimulus package on Wednesday to boost infrastructure spending hours after the central bank began selling off international reserves in a bid to prop up the peso.
"We are trying to soften the thrashing," Finance Minister Agustin Carstens told Mexican television.
(Editing by James Dalgleish) |
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