| | |  Business News | August 2009 
Mexico Awaits Recovery as Economy Shrinks
 Nicholas Casey & Anthony Harrup - WSJ.com
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August 22, 2009
Mexico City - Mexico's economy contracted 1.12% in the second quarter compared with the first, leaving it waiting for a recovery even as other countries appear poised for revival.
Compared with a year ago, the country's gross domestic product fell 10.3% in the second quarter, the country's statistics institute said Thursday.
The numbers indicated, however, that some of the worst declines may have passed for Latin America's second-largest economy. The quarter-on-quarter drop of 1.12%, which translates to an annualized decline of 4.4%, was a big improvement from the previous quarter. The GDP plunged 5.8% in the first three months of the year - a clip that would have seen the economy fall more than 20% this year had it continued.
"In June of this year, the economy probably stabilized or touched bottom, and that we'll start to see a recovery in the next quarter," said Alejandro Werner, deputy finance minister, in an interview. Mr. Werner noted that July data for car sales and unemployment figures were providing the first evidence of "green shoots" of a recovery.
The quarter-on-quarter figures were also better than analysts' projections of a 1.9% drop.
"These numbers are much better than expected," said Alfredo Coutino, director for Latin America at Moody's Economy.com. "Mexico will possibly be leaving recession by the end of the third quarter."
Nevertheless, the current downturn appears set to become Mexico's deepest since the Great Depression of the 1930s. Economists predict that the full-year GDP will end the year down 7%. That would beat the 6.2% decline during the 1995 peso crisis.
Among the bright spots: Japan, Germany and France, which all experienced modest growth during the period. Brazil is also believed to have grown in the quarter. Mexico remains highly dependent on recovery in the U.S. About a fifth of Mexico's economy is tied to manufacturing exports for the U.S.
This trade was a boon for more than a decade as U.S. consumer demand exploded. Subsequent declines have left Mexican production in a tailspin.
Meanwhile, Mexico's oil output has fallen in the past year due to a collapse in production at its biggest oil field. The country's tourism industry is also tarnished by memories of the H1N1 influenza, known as swine flu, which shut down Mexico City in May.
The lack of growth is hurting the nation's poor. A recent World Bank report estimated that the crisis will push an additional four million Mexicans below the poverty line this year alone. The bad economic news now puts more pressure on President Felipe Calderón to revive the economy. Mr. Calderón's party, the National Action Party, suffered a crushing defeat in July as it was shunned by voters during Mexico's midterm elections.
David Luhnow contributed to this article. Write to Nicholas Casey at nicholas.casey(at)wsj.com and Anthony Harrup at anthony.harrup(at)dowjones.com |
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