Tuesday, May 26, 2009

Mexico hit hard by US recession

Mexico's economy shrank by 8.2% in the first three months of this year compared with a year earlier, as the global downturn hit demand for exports. The country's finance minister has warned that economic output could decline by 5.5% in 2009. Mexico has been hit by the US recession and a drop in the amount of money sent home by migrant workers. Analysts predict the Mexican economy could suffer its biggest contraction this year since 1995.

The latest figures do not reflect the impact of swine flu, which broke out after the quarter had ended. The Mexican finance ministry has warned that the flu could cost the country's economy more than $2bn (£1.3bn). "We are looking at a lost year," said emerging markets strategist Win Thin at BBH. Capital Economics echoed this view saying the latest data "confirms our view that the economy is currently facing the worst recession in its modern history". "This sharp fall leads us to believe that our initial GDP forecast of a 5% contraction this year was not pessimistic enough." Capital Economics has now downgraded its forecast to an 8% contraction. Mexico sends 80% of its exports to the US, so has been particularly exposed to the fall in consumer spending there.

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