2009 OECD Economic Surveys: Mexico 2009

image of OECD Economic Surveys: Mexico 2009

Despite improved macroeconomic fundamentals, this 2009 edition of OECD's periodic survey of the Mexican economy finds that Mexico is being hard hit by the financial crisis and world economic downturn.  In addition to a chapter examining how to overcome the crisis, this edition also includes chapters on managing the oil economy, achieving higher performance in health and education, and structural reforms to boost long term growth.

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Assessment and recommendations

Mexico is affected severely by the global recession, like many other OECD countries, with negative economic, budgetary and social consequences. Although the banking sector has so far weathered the financial crisis rather well, manufacturing industries are being severely affected by the downturn of global demand, particularly in high-value added industries. Shipments of goods to US markets have plummeted at a fast pace, following a global readjustment of industrial inventories and leading to a sharp contraction of industrial production. Like other emerging markets, Mexico has suffered from reduced net capital inflows, as investments returned to safer havens, contributing to a decline in equity prices, rising interest rate spreads and a large depreciation of the peso. In addition, several country-specific shocks have had adverse consequences, such as the outbreak of influenza A H1N1. Also, the budget has been put under pressure by the sharp decline in energy prices, as oil exports provide a large share of tax revenues, although temporary relief comes from a price hedge and weaker peso. The rise in uncertainty has depressed business and consumer confidence to record lows, which, coupled with tightening credit conditions at home and abroad, is bearing on consumption and investment. Despite the slowdown in activity and declining commodity prices, inflation has remained persistently high as prices of tradables and food are adjusting with a lag.

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