Sunday, May 3, 2009

Mexico economy squeezed by swine flu

Fernando Bazan runs a small business packing parcels in central Mexico City.

Usually he gets a steady stream of drop-in customers all day.

But for the last four days, revenues have halved.

"Not many people want to come into the shop", he says.

"They are afraid. They ask us to pick up their packages from their homes".

His experience is one of millions in this huge bustling city. A minuscule virus has transformed the capital.

What was once one of the noisiest, dirtiest, busiest places in the world, has become strangely sterile - a quiet city, where many people wear masks outdoors, and most don't go out.

This mutation is costing a fortune.

In Mexico City alone, the mayor, Marcelo Ebrard, has put the figure at $88m (£59m) a day.

But how much will swine flu hit the wider Mexican economy?

Tourism, which represents 8% of Mexico's gross domestic product (GDP), is the sector which will inevitably be hardest hit.

In the current environment, most people see little incentive to visit Mexico, and plenty of reason to leave.

The Mexican government has lobbied hard behind the scenes to prevent its borders being closed, or any formal quarantine being imposed.

But other governments and airlines are beginning to apply their own restrictions.

Job losses

Cuba and Argentina have already stopped direct flights to Mexico. France is seeking a formal European ban on flights.

The real cost of swine flu depends on how long this crisis lasts.

UBS bank in Mexico City estimates the crisis could take out 0.2% of annual GDP if it subsides in the next two weeks, or 0.8% of GDP if it goes on for two months.

The timing could hardly be worse.

Mexico is already in the midst of a complex and disruptive drug war, and is being hit hard by the global recession.

Not even taking swine flu into account, Mexico's central bank forecasts a fall in GDP of up to 4.8% this year.

"The hope was that the economy would stabilise in the second quarter and then improve, but it looks like swine flu will at best postpone a recovery to the second half of the year'' says Damian Fraser, Latin America equity strategist at UBS.

Another concern is how far the swine flu might hit the US economy.

Mexico sends 80% of its exports to the United States, and in the event the virus has economic repercussions there, matters will only get worse here.

Unemployment could be the most striking consequence.

Mexican economist Rogelio Ramires - from consultancy firm Ecanal - believes that a crisis lasting several weeks, together with a prolonged US recession, could result in one in every eight Mexicans losing their jobs.

"We are looking at a very dramatic fall", he says.

Globalisation has enabled this new virus to be spread around the world with extraordinary speed. Any sharp decline in the Mexican economy will be equally far felt.

Related Posts :