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Mexican economy contracts 8.2% in first quarter

Thursday, May 21st 2009 - 11:24 UTC
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Mexico’s economy shrank a record 8.2% in the first quarter, --the most since the 1995 Tequila Crisis--, battered by the global financial crisis and the outbreak of swine flu. Mexican Finance minister Agustin Carstens admitted GDP may shrink as much as 5.5% this year.

Mexico’s economy is reeling from the effects of the global slump, particularly the recession in the US, which has sapped demand for exports, spurred layoffs and stifled industrial production. An outbreak of A/H1N1 influenza which has killed at least 75 people in Mexico has further eroded economic output and expectations.

“In the first three quarters of the year we will often see production and employment data and other indicators that will be discouraging” Carstens said Wednesday at a conference in Mexico City. “It won’t be until the end of the year and in 2010 when a recovery in activity will become evident.”

The government’s previous forecast for GDP this year was a contraction of 4.1%. The seasonally adjusted contraction in the first quarter from the previous quarter was 5.9%, according to the statistics agency.

Mexico’s government expects the H1N1 flu outbreak, which shut down businesses and schools in late April and early May, to cut GDP by 0.3% this year. The most recent official forecast by the central bank estimates the economy will contract as much as 4.8% this year. Since that forecast, bank Governor Guillermo Ortiz has said the swine flu may add another 0.5% to the contraction.

The Tequila Crisis stemmed from a massive Peso devaluation in December 1994 that eventually led the government to use a 50 billion International Monetary Fund bailout, guaranteed by the US Treasury, to avoid default. The effect of the Tequila Crisis was broader than the current economic slump, as interest rates soared to more than 100% and caused widespread defaults. The economy contracted 6.2% in 1995.

Categories: Economy, Latin America.

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