Mexico is, of late, making headlines not only for its deteriorating economic situation; the spread of swine flu in the region
too has made matters worse. Economists reckon that Mexico is slipping into
recession after seven straight years of economic expansion. According to the
data from National Institute of Statistics and Geography (INEGI), Mexico's
GDP declined by 8.2% at the end of the first quarter on a y-o-y basis. Analysts
say that this is the worst slide in the Mexican economy since 1995, when its
GDP collapsed by 9.2% amidst the `tequila crisis' or `peso crisis', which was
triggered by the government's decision to devalue the peso, leading to
capital flight to several countries and the virtual suspension of voluntary
external financing. With the aid of $20 bn from US, Mexico slowly regained
its strength, and its membership in NAFTA—North American Free
Trade Agreement—too came as a blessing. In fact, the tequila crisis had
helped Mexico emerge stronger.
Since then, Mexico has banked on income from tourism, export of oil
and remittances from US. Analysts say that the severe recession in US has led to
a drop in external demand for its goods, and consequently revenues from
exports and remittances from US have taken a severe beating. This has triggered
fears of the economy slipping into recession. Added to these recessionary
vestiges, the breaking out of swine flu in Mexico City has taken a heavy toll on its
tourism revenues. In fact, a five-day ban on non-essential activities was imposed
in the city, bringing the routine life to a halt. These have affected the
country's total service sector, which contributes nearly 65% to the GDP. The
government now expects the annual GDP to contract by 5.5%, compared with its previous
estimate of 4%. Credit rating agencies Standard & Poor's and Fitch have
also downgraded the country's sovereign rating from stable to negative. In this
backdrop, the government and the central bank seem to have a herculean
task ahead to put the economy back on track.
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