Global Crisis Weighs on Mexico

Global Crisis Weighs on Outlook for Mexico - a economic health check by Sergio Negrete Cardenas, IMF Survey online
Since September 2008, financial markets in emerging markets, including Mexico, have been disrupted by shortages of liquidity, and a pull back by foreign investors leading to substantial asset price drops. Credit growth in Mexico has also decelerated markedly. The abrupt currency depreciation in October last year resulted in sharp losses for some Mexican companies on foreign currency derivative positions. The weakening outlook for U.S. activity, remittances, and international oil prices all weigh on prospects for Mexico. Growth has begun to decelerate as the U.S. has slowed sharply and consumer confidence in Mexico has weakened. Real GDP growth is projected at minus 0.3 percent in 2009 with a gradual pick-up in 2010 to annual average growth of 2.1 percent. Headline inflation reached almost 6.5 percent year-over-year by end-December—above the 3 percent target—mainly pushed up by external supply shocks. However, inflation is expected to fall towards the target over the next year in the face of a widening output gap.
While Mexico is in a much stronger position today than it was just ten years ago, the global financial crisis has worsened the near-term economic outlook, the IMF found in its latest assessment of the country’s economy. Mexico’s economy is slowing down sharply because of the country’s close links to the U.S. economy. A decline in remittances and lower international oil prices (Mexico is a major exporter of oil) are also weighing on the country’s prospects. But, thanks to good economic management, Mexico has room to implement policies to offset the impact of the economic downturn.

Mexico has made significant improvements to its macroeconomic policies over the past decade. Fiscal and monetary policies are conducted in the context of rules-based frameworks which have supported important gains in policy credibility. Public, corporate, and banking sector balance sheets have also been strengthened, and a more flexible exchange rate system has reduced vulnerabilities.
But Mexico is by no means immune from the crisis. The economy is decelerating rapidly in the face of the global crisis. This reflects especially Mexico's close links with a U.S. economy in recession. Other factors, such as declining remittances and lower international oil prices, are also having an impact on growth. As a result, a sharp slowdown is expected for 2009—with GDP likely to contract more than the -0.3 percent projected in early January 2009—followed by a gradual pickup in 2010.
Now ones can read this and it - somewhat - it reads ok for Mexico comparing to other nations outlook - on the other hand we got senor Slim, and this Mexican telecommunications tycoon - the third-richest man in the world, worth some 35 billion dollars according to Forbes' most recent list - said Mexico's economy was on the brink of collapse. "I do not want to be alarmist, but we have to get ready to look ahead and not look at the consequences afterward and cry" Slim said in February.
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