Mexico’s Economy Slips 0.3% in 2001

Mexico’s economy shrank last year for the first time since 1995, but unlike that crisis-plagued year, the country’s industry appears poised for a quick rebound.

The finance ministry said Friday that Mexico’s gross domestic product shrank 1.6% in 2001’s final three months, compared with the year-ago period, as the country remained mired in a slump brought on by the U.S. economic slowdown.

For all of 2001, GDP contracted 0.3%, marking Mexico’s first year without growth since 1995, when GDP fell 6.2% in the wake of a disastrous peso devaluation.

Although economists see the 1995 recession as mostly self- induced by government mismanagement, Mexico’s current downturn is the result of its close ties to the U.S. business cycle, which is showing signs of recovery from a recession that began in March.

Mexico’s economy posted growth of 6.9% in 2000 but was undermined last year as demand for the country’s exports slowed in the United States, the destination for about 85% of its sales abroad.

Indeed, Friday’s GDP data showed the country’s industrial sector hardest hit in 2001, falling 4.1% in the fourth quarter and 3.5% for the full year. Manufacturing fell 3.9% in the year.

But economists point to emerging signs of a U.S. recovery, which signals better times ahead for Mexican exporters.

This week, the U.S. government reported that consumers spent much more than expected in January, with sales at U.S. retailers excluding auto dealers growing 1.2%--the strongest rise in nearly two years.

In addition, the Conference Board said Thursday that its leading indicator for Mexico rose 0.6% in December, snapping a five-month declining streak.

Economists see Mexico’s GDP contracting by 0.7% in the first quarter, then growing 0.6% in the second quarter, 2.1% in the third and 3.5% in the fourth, according to the latest poll by Mexico’s Central Bank. Estimates for all of 2002 are for growth of about 1.4%.

Mexican consumers remained resilient in 2001, despite the industrial slowdown.

Friday’s data showed that the economy’s services sector, which includes retailers, telephone companies and transporters, rose 1.1% in the full year, despite a 0.8% drop in the fourth quarter.