Terrorist Attacks in U.S. Have Repercussions for Mexico

SourceMex Economic News & Analysis on Mexico, September 26, 2001 | Go to article overview
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Terrorist Attacks in U.S. Have Repercussions for Mexico

The Sept. 11 terrorist attacks in New York and Washington have had serious repercussions on the Mexican economy and on US-Mexico political relations. The attacks curtailed US consumer spending and travel, which have depressed the Mexican manufacture and tourism industries--the leading sources of new jobs for most Mexicans.

Some forecasters expect negative GDP growth in Mexico

The Mexican economy, already weakened by a slowdown in the US in the first half of this year, is expecting zero or even negative growth this year because of a projected recession in the US in the last several months of this year and perhaps into 2002.

The poor forecasts for the US economy are tied directly to the terrorist attacks, which have significantly eroded US consumer confidence. The Conference Board, a US organization specializing in measurements of the business cycle, said that during September its measure for US consumer confidence suffered its worst decline since October 1990.

Analysts say a slump in US consumption has repercussions for Mexico, especially since the North American Free Trade Agreement (NAFTA) was implemented in 1994.

"We're in the same boat as the United States. That's the bottom line," economist Jonathan Heath of LatinSource in Mexico City told The Dallas Morning News. "If the US is finally in a recession, and if it drags on for a while, then we can expect the same thing for Mexico."

Economic forecasters are divided on how much Mexico's economy will fall during the next several months, but all agree that GDP growth levels will drop to at most a fraction of 1%.

"Our economic projections are that Mexico's GDP growth will be minus 1.3% in the third quarter and minus 0.8% in the fourth quarter," BBVA-Bancomer said in its latest forecast. The projections for the second half of the year would result in GDP growth of only 0.6% for all of 2001, it said.

Other organizations like the Centro de Analisis y Proyeccion Economica para Mexico (CAPEM) foresee an even greater decline in 2001. CAPEM president Antonio Castro Quiroz said the Mexican economy would not experience any growth this year, but would actually contract by 0.3%.

Some members of the private sector have criticized Fox's administration for failing to adopt an adequate plan to deal with the economic downturn related to the crisis. "We cannot detect in Mexico a clear government strategy to address the situation," said a statement by four of Mexico's leading banks, Banamex, Bancomer, Scotiabank Inverlat, and Bital.

But others blame Mexico's economic policies during the past dozen years, which have fostered an unhealthy reliance on the US. "Mexico's excessive dependence on the US, in social, economic, political, and even cultural matters, prevents us from reacting autonomously to the crisis," said Fernando Correa Mota, president of the Asociacion Nacional de Industriales Exportadores (ANIERM).

The Fox government is attempting to ease the concerns of the financial markets and the Mexican Congress. After a meeting of Fox's economic cabinet, the president's chief aide Eduardo Sojo Garza announced steps to strengthen the domestic economy, including a commitment to maintain a tight fiscal and monetary policy and push through reforms of the telecommunications, labor, energy, and tax structures. These measures, said Sojo, could help Mexico become a "safe refuge" for foreign investors.

"We must take care of the fundamental aspects of the economy to become a safe location for investments amid the uncertainty that prevails at the global level," Sojo told reporters.

The Fox administration faces an uphill battle if it is to attract more foreign investment. Recent statistics published by the daily business newspaper El Financiero show that direct foreign investment in Mexico during January-June amounted to only US$3.98 billion, down about 19% from the same period in 2000.

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