| | |  Business News | January 2009 
Mexico 4Q Economy Shrinks, Inches Toward Recession
 Mark Stevenson - Associated Press
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 |  | The U.S. on Friday announced that its economy had contracted by 3.8 percent in the fourth quarter, deepening its own recession and likely worsening the downturn in Mexico. |  | | |
Mexico City - Mexico's economy shrank at an annual rate of 1 percent in the fourth quarter, reducing its 2008 growth rate to 1.5 percent as the world economic crisis choked credit, slashed exports and decreased money sent home by migrants in the U.S.
The contraction was led by a 3.8 percent drop in industrial output, while the country's agriculture and service sectors both declined by 0.9 percent over the fourth quarter of 2007, the Treasury Department said in a report released late Friday.
"The slowdown was the result of the deterioration in economic and financial conditions in the industrialized countries," the report said.
Mexico, which sends 80 percent of its exports to the U.S., has been hit hard by the slowdown there, as tight credit and rising unemployment slash sales of Mexican-made manufactured goods and eliminate jobs for many of Mexico's 12 million emigrants.
Manufacturing exports dropped by a dramatic 8 percent in the fourth quarter, and income from oil exports, the country's top source of foreign income, fell 42.3 percent as output sagged and prices plunged more than 70 percent from their July peak.
Money sent home by emigrants, Mexico's second-largest source of foreign income, slipped 3.6 percent to $25 billion in 2008, its first yearly decline on record and nearly twice what the government had expected.
Foreign investors have meanwhile dumped local assets to cover mounting losses at home, helping to weaken the peso more than 40 percent since May to about 14.3 to the U.S. dollar.
In an effort to boost slowing growth, Mexico's central bank slashed its benchmark lending rate half a percentage point to 7.75 percent on Jan. 16, its first cut since 2006.
But the bank on Tuesday said it still expects the economy to contract between 0.8 percent and 1.8 percent in 2009, suggesting that Mexico could slip into recession - which is formally defined as two consecutive quarters of negative growth.
The U.S. on Friday announced that its economy had contracted by 3.8 percent in the fourth quarter, deepening its own recession and likely worsening the downturn in Mexico.
Mexico's president has pledged 2 billion pesos, or about $140 million, in extra stimulus spending this year to prevent layoffs and slash energy costs. But tens of thousands of farmers and union activists marched through downtown Mexico City on Friday to demand more.
"What the government has done so far is like prescribing an aspirin," said Miguel Acundo, one of the protest organizers. "What we need is a mid- and long-term plan, because unemployment is on the rise."
Yet the federal government's room for maneuver may be shrinking. On Friday, it ended a long period of near-balanced budgets, posting a full-year deficit of 9.6 billion pesos, or $670 million, equivalent to 0.1 percent of gross domestic product.
Public debt rose by 1.1 percent to the equivalent of 18.5 percent of GDP.
One good piece of news was that non-oil tax income rose by 9.8 percent, in part as a result of tax reforms passed in 2007. |
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