MercoPress. South Atlantic News Agency

Mexican economy shrinks a record 10.3% in second quarter

Three basic legs of the Mexican economy have failed: tourism, remittances and falling oil production

Mexico's economy plunged 10.3% in the second quarter its deepest contraction on record as shrinking exports forced factories to slash production and cut jobs and the tourism industry was knocked out by the A/H1N1 virus flu.

The year-on-year decline in GDP reported by on Thursday was the deepest decrease in quarterly GDP in records dating to 1981. With a downturn in the United States choking off demand for its manufacturing goods, Mexico is on track for its most severe recession since the 1930s.

Besides trade with the US the Mexican economy is based on tourism, remittances from the 12 million Mexicans in the US and oil sales which have been falling steadily because of lack of investments. The economy is forecasted to shrink about 7% this year.

“Exports have declined very sharply and we do not see yet a reaction to the slow improvement in economic activity in the United States” said Claudio Loser, president of Centennial Group Latin America and a former senior International Monetary Fund official.

Compared with the first quarter, Mexican GDP fell 1.12%, compounding a recession that has wiped out hundreds of thousands of manufacturing jobs. Some 80% of Mexican exports, including cars and televisions, go to the United States.

A severe bout of the H1N1 influenza virus made matters worse, hurting the country's key tourism industry and other services.

In the United States, the battered housing sector is showing signs of bottoming out, and manufacturing surveys have been ticking steadily higher. In Mexico, industrial output is deteriorating at a less drastic clip and consumer sentiment has edged higher from a record low in May.

A separate report released on Thursday showed the economy sank 8.08% in June from a year earlier, a more moderate decline than during the prior two months.