1. US Mexico Chamber of Commerce June 11, 2009 Animesh Ghoshal DePaul University An Analysis of the US Economic Situation and its Impact on the Mexican Economy

2. June 2009: US economy appears to be in very bad shape Comparisons to year ago: GDP Growth Q1 Expected GDP Growth For Year Change In Industrial Production Unemployment Rate Expected Budget Balance % of GDP Spring 2009-2.6-2.9-12.59.4-13.2 Spring 2008+2.51.1+0.25.0-4.6

3. Channels through which emerging economies are affected Exports Capital Flows Tourism Remittances Trade Credit

4. Mexico appears more vulnerable than most Exports as % of GDP Mexico28% Venezuela31% Brazil14% Colombia17% Argentina25%

5. Mexico particularly exposed to US economy: 80 percent of exports go to US Reduction in US Demand for Imports US total imports of goods, Jan- April 2008 ($b) US total imports of goods, Jan-April 2009 ($b) Percentage Change Mexico71.852.5-27% Venezuela15.1 7.5-50% Brazil 9.1 6.1-32% Colombia 4.1 3.1-24%

6. Mexico a major recipient of FDI FDI inflows, 2007 FDI Inflows $b FDI Inflows as % of Gross Capital Formation FDI Inflows as % of GDP Mexico24.7 9.2% 2% Venezuela 0.6 1.0% - Brazil34.614.7% 3% Colombia 9.017.8% 4% Argentina 6.510.1% 2%

7. Mexico also a major recipient of workers’ remittances Inflow of Remittances, 2007 Inflow of Remittances $b Remittances as % of GDP Mexico27.13 Venezuela 0.1- Brazil 4.4- Colombia 4.52 Argentina 0.6-

8. Tourism: Mexico major destination for tourists, and by some measures, tourism is 3rd biggest contributor to foreign exchange earnings Tourism Number of International Arrivals, 2007 Rank Mexico 21.4 m10 Brazil 5.0 m41 Argentina 4.644

9. Tourism: Sharp decline expected in 2009 Revenue in 2008: $13.3 billion Revenue expected in 2009: $7.6 billon –Slowdown in US and European economies –Swine flu scare –Hotel occupancy down by 25% in April

10. June 2009: Mexico’s economy appears to be bad shape First quarter GDP fell by 8.2% Decline felt throughout economy –Manufacturing output fell 13.8% –Construction fell 7.7% –Services fell 7.8% Worst downturn since 1994-95 crisis, when GDP fell 6.2% in 1995 Near term prospects not good –Economy expected to shrink 5-6% in 2009

11. But Mexico today very different from Mexico of the past Inflation Exchange Rate Debt Service Interest Rate

12. Inflation

13. Exchange Rate, 1980-1998

14. Exchange Rate, 1994-2008

15. Debt Service

16. Interest Rate

17. Longer Term Prospects Are Very Good Close link to US economy –US expected to recover faster than rest of G-7 Good economic policies –Fiscal stimulus possible –Easing monetary policy possible Anti-poverty programs Political stability