Mexico: Flu and auto troubles fuel downturn

Mexico entered recession in late 2008, and growth had turned highly negative by the first quarter of 2009, as both exports and domestic demand contracted in the wake of the crisis. The outbreak of influenza and continued troubles for auto manufacturers are likely to have contributed further to the downturn.

Growth is set to pick up during the second half of 2009 and accelerate further through 2010, reaching quarterly growth rates of above 4% in annualised terms. Inflation has remained relatively high, despite the sharp drop in demand, largely due to sticky administered prices. This persistence in inflation has limited the scope for monetary easing.

The fiscal response to the crisis has been welcome, although it could have been better targeted. While the room for further stimulus is limited, Mexico should not rush into fiscal consolidation and aggravate the recession needlessly. To avoid adverse market reactions to breaking the balanced budget rule, a clear medium-term fiscal strategy should be formulated and communicated. To help boost activity, the central bank should use the room it has for cutting policy rates further, while keeping an eye on the exchange rate and possible exchange-rate pass-through into consumer prices.

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See also www.oecd.org/mexico

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©OECD Observer No 274, July 2009




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Sept 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.2% Sept 2018
Last update: 13 Nov 2018

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