| | |  Business News | May 2009 
Mexico Economy to Shrink 8.5%, Goldman Sachs Says
 Valerie Rota & Carlos Manuel Rodriguez - Bloomberg
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Mexico’s economy will contract this year by the most since 1932 as a slump in the U.S. curbs demand for exports and slows dollar flows from tourism and remittances, Goldman Sachs Group Inc. said.
Gross domestic product will tumble 8.5 percent this year, Paulo Leme, chief Latin America economist at Goldman Sachs in Miami, wrote in an e-mailed report today. That would be the biggest decline in GDP in 77 years, according to the nation’s statistics agency. Goldman Sachs previously forecast Mexico’s economy would shrink 4.8 percent in 2009.
Mexico’s economy will shrink more this year than it did during the Tequila Crisis of 1995, when a devaluation of the peso the previous year sparked capital outflows throughout the region, according to Goldman Sachs. While the peso’s slump in 1995 allowed Mexico to boost exports to the U.S., Goldman Sachs is betting demand for Mexican goods will take longer to recover in 2009 because of the recession in the world’s largest economy.
“It is hard for investors to fathom such a severe collapse in economic activity,” Leme wrote. In 1995, “external economic conditions were much more favorable than they are now.”
The U.S. is Mexico’s biggest trading partner, buying about 80 percent of Mexican exports.
The decline in Mexico’s GDP forecast by Goldman Sachs is bigger than the slump estimated by the government and commercial banks including Bank of America Corp., UBS AG, Citigroup Inc., HSBC Holdings Plc and Credit Suisse Group. Goldman Sachs is predicting Mexico will shrink more than Argentina, Brazil, Chile and Colombia, according to the report sent today.
Swine Flu
Goldman Sachs revised its estimate after a government report this month showed the first quarter contraction was bigger than analysts forecast and the largest since 1995. The slump in Mexico will continue into the second quarter as the outbreak of the swine flu cuts 0.5 percentage point from GDP, according to Goldman Sachs.
Mexico will post a $9.3 billion deficit in its current account this year and a $1.5 billion surplus in its capital account, Leme wrote. He is forecasting the peso to appreciate to 12.9 per dollar over the coming 12 months.
Goldman Sachs predicts the economy will grow 4.3 percent in 2010, more than its previous estimate of a 1.4 percent expansion, as the projections incorporate “a more benign external economic environment,” Leme wrote.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1(at)bloomberg.net. |
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