| | |  Business News | January 2009 
Treasury: Mexico Appears Headed for Recession
 Julie Watson - Associated Press
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| | Mexico's Minister of Economy Gerardo Ruiz, left, and Mexico's Secretary of Finance Agustin Carstens attend a press conference in Mexico City, Thursday Dec. 18, 2008. Ruiz and Carstens announced a package of new measures to face the impact of the global financial crisis in Mexico. (AP/Marco Ugarte) | |
Mexico City – Mexico's economy is likely headed for a recession in 2009 amid slowing exports and investment, Treasury Secretary Agustin Carstens suggested Friday.
Carstens predicted negative growth in the first two quarters and zero percent growth for the year, as the world economic crisis slashes demand for commodity, oil and durable good exports to Mexico's biggest market, the United States.
The standard definition of a recession is two consecutive quarters of negative growth.
Carstens revised his 2009 growth forecast to zero percent this week, from 1.8 percent. He said growth also would be slowed by falling foreign investment, as foreigners use capital to cover losses at home, and by a decline in the money Mexican migrants send back from the U.S. Remittances are Mexico's second-largest source of foreign income after oil.
Central Bank president Guillermo Ortiz called the zero percent expansion predicted by Carstens "an optimistic scenario," but refused to give his own forecast, saying only that Mexico's economy likely contracted in the fourth quarter of 2008. Changes to gross domestic product have not yet been reported for the quarter, but Ortiz said they would probably be negative.
Mexico, which sends 80 percent of its exports to the United States, has been pummeled by the recession there, with sales of vehicles and manufactured goods falling.
Import costs have meanwhile soared, boosted by a 25 percent decline in the peso last year — which is fueling inflation even as Mexico's economy cools.
Annual inflation, which hit a seven-year high of 6.5 percent in December, will start slowing this month as the government freezes gasoline prices and slashes electricity and natural gas costs, Ortiz said.
That should give the central bank room to cut its benchmark lending rate in a bid to boost slowing growth, Ortiz added.
Carstens, predicting that inflation will slow to 5.4 percent in 2009, said he hopes the bank takes action soon.
While the U.S. recession will hurt Mexico, Ortiz said the country is in better shape to weather the storm than in years past. Since its own financial crisis in 1995, Mexico has accumulated more than $30 billion in foreign currency reserves, allowing it last year to auction off $15 billion to prop up the battered peso — its biggest sell-off in a decade.
Ortiz, who said the country's banking system is healthy, predicted that credit would ease this year. |
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