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Expert: US meltdown dents Mexico recovery

(Xinhua)
Updated: 2009-06-12 14:05

MEXICO CITY -- Mexico's efforts to tackle the effects of the ongoing global financial crisis have been wrecked as the nation's financial system is so closely tied to the United States, a leading Mexican economist said on Thursday.

"The construction industry is very weak despite the very low level of interest rates. It is clear that they are having problems with financing," said Eugenio Aleman, a Latin America economist from Wells Fargo Bank.

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Aleman said he had recently revised down his forecast for this year's gross domestic product (GDP) to a decline of 5.5 percent from an earlier estimate of 3.9 percent. Mexico's GDP shrank 8 percent during the first quarter of 2009.

The biggest single chunk of the government's anti-crisis spending has gone to large public works, which could have boosted the development of the construction industry. However, many of those projects have been delayed as construction companies cannot get loans they need to start work.

"Mexico's fate is so closely linked to the United States that they can't get out of the recession on their own," Aleman said. "They are trying to smooth over the problems. The central bank has loosened policy. But there is not much the government can do."

Since the unexpected collapse of US stalwart Lehman Brothers in September 2008 , the first victim of the US financial crisis, banks across the world have been cutting back on liquidity.

Foreign owners of the Mexican banks began withdrawing money from the country due to fear of what might happen in Mexico.

"The biggest concern for the Mexican economy right now is the crisis in autos," Aleman said.

The three US leading automakers all have manufacturing branches in Mexico and face serious problems that have clobbered Mexico's construction industry.

It is estimated that Mexico's car companies will sell 9.5 million vehicles this year, down 27 percent from a year earlier and nearly 41 percent from that in 2007.

"Mexico has been hit by the drop in auto demand," the economist said.

Besides, Mexico's industrial employment dropped 7.9 percent in March from the same month a year earlier.

According to Aleman, while the unemployment situation is grimmer in Mexico's northern and western region bordering the United States, the southern region is hit hard by a collapse in tourism demand as a result of the flu pandemic. Tourism is one of the nation's pillar industries.