Economic overviews of Mexico & Canada – March 3, 2009

Mexico: With 80 percent of its exports traditionally going to the US, the economic turmoil of its neighbor to the north has had an adverse impact on Mexico. Many Latin American economists see the country as being in an outright recession. Q4 of last year saw the first quarterly contraction since 2003, and there seems to be little doubt that Q1 2009 will see negative growth as well. In fact, Mexico's economy might shrink by as much as 1.8% in 2009, according to estimates. Industrial production in December saw its steepest decline in seven years. The Central Bank has instituted two rate cuts already this year and the benchmark rate now stands at 7.5%. But with inflation running in excess of six percent and the currency being in a free-fall against the US dollar, there is not much room left for further interest rate cuts. However, the government introduced its own stimulus package that will pump $8.2 billion into the economy.

Canada: The economy has not grown on a month-to-month basis since July of 2008. This scenario will not change soon because of the precarious state of Canada's most important trading partner -- the US. The Canadian government passed its own stimulus package to the tune of US$31.8 billion. These funds will be invested over two years in infrastructure projects. It also added US$40 billion to an existing US$60 billion fund to buy mortgage-backed securities to encourage banks to lend again. But the government also introduced a budget showing a deficit of $68.1 billion over the next five years, and thus broke a string of 11 successive budget surpluses.

NAFTA Notes: Recent polls in Canada showed that Canadians are getting less enthusiastic about this trilateral agreement in terms of relations with the southernmost member country. Still, the Mexican-Canadian trade has grown fivefold since 1994, amounting to US$21 billion in 2007. However, this pales compared to the US-Mexican trade volume of $349 billion and the US-Canadian trade of $566 billion for the same year. Recently, Prime Minister Harper of Canada and President Calderon of Mexico found a common cause over the "Buy American" clause in the US stimulus package and decided to fight this form of "protectionism" together.

Intra-NAFTA steel shipments continue to be driven by the US. As of November 2008, the latest month for which data is available, shipments to the US accounted for half of the steel movements within NAFTA. US steel exports to its NAFTA partners accounted for another 47% of the total volume. November 2008 also showed the lowest monthly volume of steel shipments among the NAFTA partners for at least 18 months. The total volume came to 1.1 million metric tons or 600,000 mt less than October and September 2008. Given the bleak economic outlook in all three member states, this number will inevitably decline in the months to come.

General Data:

Automotive and Steel Production

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