| | |  Editorials | Issues | May 2009 
Mexico Flu Helps Revive Memories of Tequila Crisis
 Thomas Black & Jose Enrique Arrioja - Bloomberg
go to original
Mexico’s economy probably contracted the most in 14 years in the first quarter and may shrink more in coming months after the swine flu epidemic, raising the specter of a recession that rivals the so-called Tequila Crisis.
Gross domestic product shrank 8 percent in the first three months of the year as exports to the U.S. plunged, according to the median forecast of 11 analysts surveyed by Bloomberg before the government’s report, which is due May 20.
UBS AG predicts GDP may contract 7 percent in all of 2009, revised from a previous forecast of 4.3 percent. The economy shrank 6.2 percent in 1995, when the government used a $50 billion International Monetary Fund bailout to avoid a default after devaluing the peso in December 1994.
“This is looking a lot like 1994, and we have very bad memories of that crisis,” Gabriel Casillas, the 33-year-old chief economist in Mexico City for UBS AG, said in an interview. “I do lose sleep.”
The effect of the Tequila Crisis was broader than the current economic slump, as interest rates soared to more than 100 percent and caused widespread defaults. Still, this year’s GDP contraction will be bigger than during the Tequila Crisis, Casillas said.
“Just when we thought that maybe this year wasn’t going to be that ugly, the flu appears,” said Ruben Camiro, chief financial officer of Grupo Posadas SAB, Mexico’s largest hotel chain. “It has severe short-term implications for everybody.”
Foreign tourism revenue may fall $4.5 billion this year, about a third of last year’s total, because of the H1N1 swine flu outbreak, Tourism Minister Rodolfo Elizondo said in a May 14 interview.
Expecting a Rebound
Mexican Finance Minister Agustin Carstens said he’s counting on a quicker rebound on the back of an improved U.S. economy. Carstens said May 7 that the economy will shrink 4.1 percent in 2009 and that the swine flu outbreak will contribute about 0.3 percentage point to the decline.
Sergio Luna, an economist with Citigroup Inc.’s Mexican unit Banamex, revised his forecast to a 5.2 percent decline in a May 14 report from a 4.9 percent contraction.
This year’s economic drop won’t cause the lasting damage to Mexican consumers and businesses that the Tequila Crisis did because interest rates are declining, inflation has held at about 6 percent and the U.S. economy may be bottoming out, Camiro of Posadas said on May 14.
Mexican exporters have been the hardest hit. Automakers posted a 41 percent decline in exports in the first quarter. The nation’s total exports fell 29 percent in the period to $50.1 billion, according to government data. In 1995, the economy was helped by a 31 percent increase in exports, mostly to an expanding U.S. economy.
Job Loss
Manufacturers will shed 420,000 jobs this year as companies adjust production to lower demand, said Miguel Maron Manzur, president of the National Manufacturing Industry Chamber in Mexico City.
Years of lowering foreign debt and balancing its budget will allow the government to increase spending to fight the recession. In 1995, then President Ernesto Zedillo slashed the budget and raised the value-added tax to 15 percent from 10 percent.
“This is not a crisis like the one before,” Maron said. “There are better conditions now than the ones in the nineties.”
Markets Last Week
Mexico’s benchmark Bolsa index fell 3.1 percent last week to 23,341.72, the second decline in three weeks and the biggest weekly fall since March 6. Industrias Penoles SA climbed 16 percent, the biggest gain among members of the index. Cemex SAB, the largest cement maker in the Americas, declined 9.7 percent.
The peso weakened 1.7 percent to 13.2600 per dollar last week. The yield on Mexico’s 10 percent bond due December 2024 rose 6 basis points, or 0.06 percentage point, to 7.87 percent, according to Banco Santander SA.
The following is a list of events in Mexico this week:
Event Date Forecast Industrial production for March May 18 -9% GDP for the first quarter May 20 -8% Retail sales for March May 21 -3.7% Bi-weekly inflation May 22 -0.37% Trade balance for April May 22 -$508.5 Mln
To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack(at)bloomberg.net; Jose Enrique Arrioja in Mexico City at Jarrioja(at)bloomberg.net |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us