Mexico braces for worse as GDP shrinks 8.2%

By AFP

July 15, 2010 Updated May 20, 2009 at 6:01 PM CDT

Mexico's economy shrunk 8.2 percent in the first quarter, and the finance minister predicted GDP would drop 5.5 percent in 2009, as the country braced for its worst year in more than a decade.

The recession in the United States has hit exports hard, reduced the flow of money sent home by migrants, and dealt a blow to tourism, all key contributors to Mexico's one-trillion-dollar economy.

The latest figures do not take into account the impact of A(H1N1) flu, which led to a virtual shutdown of parts of the country and dealt a severe blow to tourism and other industries.

"Gross Domestic Product (GDP) fell 8.2 percent ... in the period January-March 2009," compared with the same period the previous year, INEGI said in a statement Wednesday.

Finance Minister Agustin Carstens predicted annual GDP would drop 5.5 percent, a downward revision from the ministry's recent estimate of 4.1 percent, at an annual convention of exporters and importers Wednesday.

Experts had already predicted the economy would this year put in its worst performance since 1995, when an economic crisis and devaluation of the peso caused GDP to sink 6.9 percent under what became known as the "Tequila Effect."

The finance ministry has estimated the flu's impact will cost the economy around 2.3 billion dollars -- around 0.3 percent of GDP.

Carstens declared Mexico in recession on May 7.

A group of 38 multinational companies in Mexico on Wednesday meanwhile announced plans to invest 6.3 billion dollars to help the country pick itself up.

"Despite the economic crisis, and in the knowledge that the future of our companies is linked to the future of Mexico, we will invest 6.3 billion dollars in 2009," said Julio de Quesada, president of the Executive Council of Global Enterprises (CEEG) groups.

The grouping of 38 global companies operating in Mexico -- including American Express, Pfizer and Wal-Mart Mexico -- aimed to help create more than 27,000 jobs with the investment, Quesada said, speaking at a news conference with Mexican President Felipe Calderon.

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