Economic overviews of Mexico & Canada – March 27, 2009

Mexico: Banco de Mexico is desperately trying to prevent a full-blown recession by cutting the benchmark interest rate by 3/4 percent to 6.75%. Industrial production and manufacturing output plunged in January and will remain weak as long as the US market remains in crisis. Central Bank officials forecast a GDP contraction of 1.6% for 2009. The core inflation rate, energy and food items excluded, rose at 5.78% in February, the highest rate since November 2001. On the more positive side it was reported that gross fixed investments fell only 0.3% in December from a year ago, which was far less than expected. In other news, a nasty little trade skirmish has erupted between Mexico and the US. The US House of Representatives has withdrawn funds from a pilot program that would have allowed Mexican trucks hauling cargo in the US. Until its reinstatement Mexico has introduced punitive tariffs against a number of US agricultural products.

Canada: Economic conditions are worsening in Canada as well. To counteract this development, Bank of Canada cut back the benchmark interest rate to 0.5%. But the indicators are gloomy. GDP in Q4 of 2008 fell the most since 1991. Factory shipments in January fell for the sixth straight month and factory sales dropped to C$41.7bn - the lowest level since May 1999. In the first two months of this year 211,600 workers have lost their jobs compared to 81,400 job losses in Q4 2008. US Steel has idled its plant in Ontario, affecting 1,500 workers. Plant capacity in Q4 fell to 74.7% compared to 78.1% in Q3 of last year. Latest estimates forecast a loss in GDP of 2.9% for the year.

General Data:

Automotive and Steel Production

Total Intra Nafta Steel Shipments Jan-Nov 2008 in Thousand Metric Tons