U.S. economy at risk of double-dip recession

Green shoots or false dawn? - The U.S. economy appears destined for several years of weak growth and high unemployment that leave it vulnerable to a recession relapse after the massive dose of government stimulus wears off. While tepid growth looks likely to resume late this year and build modestly into 2010, the credit bust has left households and businesses unable or unwilling to borrow and spend as freely as they did before the crisis. The U.S. government has stepped in as lender and spender of last resort, but its deep pockets are not bottomless. Waning political and investor appetite for taking on more debt could stand in the way of any additional big spending plans.

"When you remove the government stimulus, what the private sector can generate in terms of growth feels like a recession," said Jeffrey Rosenberg, head of global credit strategy at Banc of America Securities Merrill Lynch in New York. Rosenberg thinks the U.S. economy may trudge along at a sluggish growth rate somewhere in the range of 0.5 percent to 1.5 percent while banks recover from the credit crisis, which could take another three years.

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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Recovery optimism positive signs getting ahead of themselves

Is company cost-cutting company throat-slitting? In recent weeks, a number of investors and economists have declared the recession all but over based on a handful of seemingly positive signs, including a flurry of better-than-expected earnings from U.S. companies. They may be getting ahead of themselves. Aggressive cost-cutting through layoffs and capital expenditure reductions has, it's true, helped many companies report profits that surpassed analysts' estimates. But beneath what can be perceived as "green shoots" of recovery, experts say, lie the germinating seeds of what could be a much deeper, more prolonged recession. "I think the clear and present danger is the negative feedback loop for the economy," said Greg Peters, head of global-fixed income and economic research at Morgan Stanley in New York." If people are getting laid off and if capital expenditures are being pulled back, then that has a cascading effect that is much more long-lasting on the economy."

Analysts and investors argue that while job, capex and R&D cuts may shore up individual profits temporarily, they are bad news in the aggregate. They swell the ranks of the unemployed, reduce the wages of those who keep their jobs, and hurt an already struggling economy by further crimping consumer and corporate spending.

And that will only ricochet back on the companies themselves, reducing demand for their products and services and putting additional pressure on their sales and margins. "As corporations cut payrolls and deleverage they are acting perfectly rationally," said Robert Reich, the former U.S. Labor Secretary under President Bill Clinton who now teaches at the University of California, Berkeley. "But if that's what every corporation does, we're going to end up with far more job losses and in a deeper economic hole. Who's going to be left to buy all the goods and services these companies produce?"

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Mexico resist crisis

Economically, Mexico is bearing up much better than it's neighbors to the north. When the New York Times reached out to Mexican billionaire Carlos Slim for a 250$ million loan to keep the newspaper afloat, it became clear to the world what Mexicans already knew: Mexico had been able to avoid the worst of the US. economic crisis.
When the US Federal Reserve extended a loan of 30$ billion each to the central banks of Brazil, South Korea, Singapore and Mexico, Mexico did not touch those funds. It simply reinvested them in treasury bonds, leaving them in accounts in New York.
This is no accident. It stems from prudent economic policies implemented after the December 1994 devaluation of the mexican peso that sent the economy into a tailspin. At that time, President Ernesto Zedillo had been in office a few days and his entire agenda was thrown into disarray by the crisis.

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Baja California is a very popular holiday destination for North Americans living on the West Coast. Although most tourists concentrate in the areas around Ensenada (just past the border, south of Tijuana), and in the Los Cabos region, at the very Southern end of the peninsula. Here you can find modern tourist facilities which — according to Baja California official visitor’s guide — "have been designed to conform to the environment". Most of these facilities however, resulted in creating massive tourist resorts which eventually marred the natural environment, and these areas have been attracting even more investors with tourist development plans which lack strategic long-term thinking and environmental policies. However, the Baja peninsula offers significant eco-tourism attractions: the region’s clear and tranquil waters, its lagoons and wetlands, marine reserves and desert landscape framed by the Sea of Cortez (defined as "The World’s Aquarium" by Jacques Cousteau) are only some of its marvelous natural beauties. Of course this tourism attracts business from many different kinds of foreign and Mexican investors.