Mexican Economy Seen as Shrinking

The head of Mexico’s central bank said Tuesday he expects a 1% to 1.5% contraction in the third quarter, with gross domestic product growth to be close to zero this year, followed by a modest rebound in 2002.

The predictions by Bank of Mexico Governor Guillermo Ortiz spelled a further disappointment for President Vicente Fox, who had promised voters high economic growth during his campaign.

Ortiz said a sharp downturn in manufacturing was largely a result of the U.S. economic slowdown.

In presenting the bank’s quarterly inflation report, Ortiz said aggregate demand probably fell 3% in the third quarter and the economy is likely to grow only about 1.5% in 2002.

Mexico’s economic growth, originally seen by the government at 4.5%, has slowed significantly this year. GDP rose 1.9% in the first quarter and was flat in the second. The National Statistics Institute will release official third-quarter data Nov. 15.

Exports account for 30% of Mexico’s GDP. Ninety percent of the country’s exports go to the United States.

The economic slowdown has kept a lid on the country’s monthly trade deficits, which have been below private forecasts.

Ortiz said the current account deficit will end this year under 3% of GDP, and in 2002 it is expected to be just over 3% of GDP.

Also next year, the central bank expects private consumption to rise 1.8% and private investment to rise by 3.1% compared with 2001.