| | |  Business News | December 2009 
Mexico Recovers from Flu, Financial Crisis
 Alexander Manda - Xinhua
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December 21, 2009
 |  | Mexico's economic decline in the second quarter of 2009 was the worst for around 80 years. |  | | |
Mexico City - The A/H1N1 flu outbreak and the world financial crisis battered Mexico's economy in 2009, but there are indications of a recovery in 2010 thanks to a rebound forecast for Mexico's main trading partner, the United States.
The A/H1N1 flu outbreak in the Latin American country in the second quarter of 2009 forced the Mexican government to shut down all its businesses, schools and government offices for three weeks beginning on April 26.
As a result, the nation's economy started to slow down, with the second quarter's economy registering a 10.3 percent decrease compared with the first quarter.
The shutdown policy hit businesses directly, having a knock-on effect on sectors like tourism, which was threatened by public perceptions of danger caused by the A/H1N1 flu.
FLU, FINANCIAL CRISIS SLOW DOWN ECONOMY
Last week, Mexico's Tourism Minister Rodolfo Elizondo told media that Mexico's tourism would end the year with around 10.5 percent less income than 2008.
The immediate post-crisis impact also hit the tourism industry, causing the hotel occupancy rate to cut down to only five percent, while the figure for a typical May should be as high as up to 65 percent, said the Mexico City Tourism Department.
Had the occupancy rate been sustained through the whole year, the total tourism income for Mexico might have been only 7 percent of that in 2008.
The A/H1N1 flu has killed 780 people and infected more than 67,200 others in Mexico since mid-April, according to Mexico's Health Ministry.
The ministry's statistics also showed that during the greatest infection period between late September and early October, every day witnessed more than 1,000 people diagnosed with flu, although the economic crisis seemed to have eased during the period.
The Mexican government estimated that the outbreak of the A/H1N1 flu, which spread worldwide, shaved 0.7 percentage points off Mexico's gross domestic product (GDP).
Mexico's economic decline in the second quarter of 2009 was the worst for around 80 years, but not all of it can be blamed on flu. The U.S. economy, which buys 80 percent of what Mexico sells overseas, entered a steep decline in October 2008, although it had been heading down since the start of last year.
The U.S. economy slowdown reduced its demands for oil, which is Mexico's largest export and top foreign income earner and accounts for around 40 percent of the nation's budget. In the first 10 months of this year, Mexico's average oil export was 1.2 million barrels per day (bpd), down 12.9 percent from the same period in 2008, said Mexico's Energy Ministry.
Heavy dependence on oil exports means the nation's financial resources tend to follow the business cycle: falling when times are bad and rising when times are good.
Manufactured goods, Mexico's second largest exports to the United States, crashed because of a worsening financial crisis that left millions of U.S. residents unemployed and cut off credit even to those businesses that kept running and workers who kept their jobs.
Auto manufacturing, which relies heavily on exports to the United States, saw a 35-percent decline in auto production and a 33-percent decline in auto exports during the first eight months.
Meanwhile, construction, which relies heavily on stable financing, witnessed a 14-percent year-on-year decline during the first nine months.
Another factor that affected Mexico's economy was a crash in hard currency remittances from foreign countries, Mexico's second largest foreign income earner. The hard currency remittances during the first 10 months were just a little more than 18 billion U.S. dollars, 16 percent lower than the same period a year earlier.
Mexico found it hard to apply fiscal measures to fight the recession because of tax problems and foreign ownership of its major banks.
Most of Mexico's banks are well-capitalized and U.S.- and Spanish-owned. When the finance crisis struck with the collapse of U.S. investment bank Lehman Brothers in late 2008, developed world parent companies turned to their Mexican subsidiaries for liquidity, cutting Mexicans off from credit in their turn.
Poor financing triggered shutdowns and delays for the government's key investment projects, the largest of which was a container port worth 5 billion dollars and planned at Puerto Colonet in the northern state Baja California, intended to rival U.S. port giant Long Beach.
ECONOMIC RECOVERY
In recent months, the Mexican government, however, has been loudly trumpeting a return to economic growth, taking its cue from an economic recovery in the United States.
In November, Mexico's National Statistics Agency reported a growth of nearly 3.0 percent in the third quarter versus a quarter earlier, although the economy remained 6.2 percent smaller than a year earlier. The government forecasts a 6.7 percent decline for the year as a whole, representing a substantial improvement on the second quarter.
Even so, Mexico still remains the worst-hit economy in the region. Latin American peer Brazil will grow 0.3 percent this year, down from a growth of 5.1 percent during 2008, according to official estimates. For next year, analysts are expecting 3.5 percent growth in Mexico, although they are also expecting inflation to rise in part due to new taxes.
This month, Alicia Barcena, executive secretary of the UN Economic Commission for Latin America and the Caribbean, said that Mexico had passed the worst point of its economic woes, adding that "we are seeing substantial dynamism in the Mexican economy."
She cited a U.S. recovery as the main influence and urged Mexico to take measures to ensure that it can compete better in overseas markets, where China is taking its market share. Mexico's currency, the peso, is now 19 percent weaker than at the start of the year, but "efforts must be made to boost competitiveness," she said.
"Industry must be made more dynamic. Mexico has very great potential there, because there is installed capacity and technical ability," she added.
Barcena also called for more financing for small- and medium-sized firms and for consumers in order to strengthen the nation's internal market, and warned that state development banks, like Nacional Financiera, had weakened significantly during the last 30 years.
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