| | |  Business News | August 2009 
Mexico’s Economy Shrank Most in More Than 25 Years
 Jens Erik Gould - Bloomberg
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August 20, 2009
Mexico’s economy contracted at the fastest pace in more than 25 years last quarter as the global recession and swine flu caused a plunge in industrial output and services.
Latin America’s second-largest economy shrank 10.3 percent in the second quarter from a year earlier, the national statistics agency said today. Manufacturing shrank 16.4 in the second quarter and the service industry contracted 10.4 percent.
Mexico’s slump has deepened and job losses have accelerated as the recession in the U.S., which buys about 80 percent of the nation’s exports, saps demand for manufactured goods. Still, seasonally adjusted quarterly data shows the economy performed better in the second quarter than in the first.
“The economy had a heart attack and you’re starting to see a recovery,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “The bottom of the recession is behind us.”
The economy shrank 1.1 percent in the second quarter from the first quarter, compared with a 5.9 percent contraction in the first quarter from the previous three months, according to seasonally adjusted figures from the statistics agency.
“We’ll have a better GDP in the third quarter compared with the second, and in the fourth compared with the third,” Central Bank Governor Guillermo Ortiz said yesterday in an interview with UNAM TV. “But on average for the year, it will be very ugly.”
Worst in Region
Mexico’s GDP, the broadest measure of a country’s output of goods and services, will contract the most this year among the region’s largest economies, said Claudio Loser, former Western Hemisphere director for the International Monetary Fund.
“Exports have declined very sharply and we don’t yet see a reaction to the slow improvement in economic activity in the U.S.,” Loser said in a conference call.
Analysts had estimated gross domestic product would shrink 10.6 percent, according to the median estimate of 23 economists surveyed by Bloomberg.
The decline in second-quarter GDP was the biggest quarterly fall since at least 1980, according to data compiled by Bloomberg. The outbreak of swine flu in April and May will probably reduce GDP by 0.5 percent this year, Ortiz has said.
Auto Industry
Volkswagen AG, Europe’s largest automaker, said in June it would reduce production of four models in Mexico for about six weeks as demand stalled amid the global recession. Mexican production of cars and light trucks fell 48 percent in June from the same month a year earlier, the nation’s Automobile Industry Association said.
Mexico’s peso will depreciate because of the contraction in the economy, Rogelio Ramirez de la O, the Mexico City-based economist who predicted the 1994 peso devaluation, said in a conference call today.
The currency was little changed at 12.8875 per U.S. dollar at 5:05 p.m. New York time.
The central bank forecasts Mexico’s economy will shrink as much as 7.5 percent this year, which would be the most since 1932. Brazil’s economy will only contract 0.34 percent this year, according to a survey by that country’s central bank.
The shrinking economy has cut tax collection. That, along with falling oil revenue, will widen the budget deficit this year to the equivalent of 3 percent of GDP from 2.1 percent in 2008 and in 2007, the government predicts.
President Felipe Calderon said this month that officials may propose a combination of debt, higher taxes and lower spending in a bid to keep a lid on next year’s budget gap. Standard & Poor’s cut the outlook on Mexico’s debt to “negative” from “stable” in May because of the country’s dependence on oil revenue.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net |
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