Economies of Mexico & Canada following US' sinking trend

Mexico: The country’s dependence on the huge market to their North is absolute. Subsequently, the latest economic news could not be anything but ugly. Exports to the US represent 20 percent of GDP and have fallen 36 percent in the past twelve months. American companies are repatriating their Mexican earnings to their struggling parents in record numbers. Mexico’s GDP contracted a steep 21.5 percent from Q4 to Q1.  Remittances from abroad (mostly the US) dropped to US$1.7 billion in April or 18.6 percent less than last year. Banco de Mexico officials expect a GDP decline of 5.9 percent for the year which is four times as bad as for the entire Latin American region. Tourism is expected to drop by 20 percent this year and oil production is waning, most likely falling short of this year’s target of 2.7 million barrels per day.

    Special Focus -- Comparison to 1995: The current crisis is often compared to the harsh recession of 1995. But Mexico is on a lot more solid footing this time around. Fiscal accounts are close to being balanced, external debt is sustainable, inflation is relatively low (52 percent in 1995) and the exchange rate is flexible (as opposed to the massive devaluation of the then dollar pegged peso). The Interbank interest rate hit 90.5 percent in 1995. Today it stands at 5.39 percent. Mexico has $76 billion in international reserves, a $47 billion flexible credit line with the International Monetary Fund (unused as of yet) and a $30 billion currency swap line with the US Federal Reserve. Total debt is only one-third of GDP or less than half the OECD average. Macroeconomic conditions in Mexico are a lot better now than they were 14 years ago.

Canada: GDP fell 5.4 percent from Q4 to Q1, the worst decline since 1991. Exports in the month of April fell 5.1 percent and imports contracted 1.5 percent, resulting into a very unusual trade deficit for the month. The benchmark interest rate is at a record low of 0.25 percent and the Bank of Canada has promised to keep it there until June 2010. Canadian companies and government officials have started an intense lobbying campaign in the US to make changes in the “Buy American” provision contained in the stimulus bill. Canadian enterprises, many of them American-owned, do not want to be excluded from the US $784 billion stimulus package. Just recently, Canadian companies were shut out on a water quality bill in the US since the Canadian provinces had not signed on to the World Trade Organization’s Government Procurement Agreement. The North American Free Trade Association (NAFTA) does not necessarily stand for free trade; not even among its members.

Intra-NAFTA Steel Shipments: The latest published numbers as of February 2009 show the continuing trend of sharply reduced intra-NAFTA steel shipments. Year-on-year shipments in February were off by 49.3 percent (49.5 percent in January).

General Data:

Automotive and Steel Production

Total Intra NAFTA Steel Shipments Mar 2008-Feb 2009 in Thousand Metric Tons