Tourism is Mexico’s third-largest source of revenue and given recession in the US, ongoing drug violence, and fears of swine flu, the industry is convulsing. Revenues are down 40%. The other pillars of the economy, remittances and oil, aren’t faring much better.
The second quarter of 2009 saw a 10.3% drop in GDP over the same period last year. Mexico’s economy is expected to contract by 7% this year, according to forecasts. Believe it or not, this isn’t the worst-case scenario. Had first quarter figures stayed on track, the economy would have contracted by 20% this year. But the question remains: When will the economy rebound?
Some already see light at the end of the tunnel. Once the US economy rebounds, so the thinking goes, the Mexican economy will revive. On August 20, Deputy Finance Minister Alejandro Werner told the Wall Street Journal the economy probably hit bottom in June and growth will resume in the next quarter. Moody’s Economy.com states that Mexico “will possibly be leaving recession by the end of the third quarter.”
I am less optimistic. After a promising respite, cartel killings have resurged throughout Mexico. The country is bracing for the imminent return of H1N1, unsure if Tamiflu will provide succor. (Immunization requires two shots spaced a month apart. Emerging evidence indicates the poor are not leaving work for the second shot.) PEMEX, Mexico’s state-owned oil company, provides nearly 40% of the state’s tax revenue, but its production has been decreasing since 2004. In July, output was reported to have fallen by almost 8% in the previous year, marking the steepest drop since 1942. The company is so inefficient it requires oil prices above $70/barrel to operate in the black. Finally, most businesses can only access loans at high rates, dousing any hope for strong domestic demand to take up some of the slack once the US turnaround picks up steam.
In Acapulco, irreverence has faded. As the busy season winds down, there are few concrete signs of a rebound in the near term. Maybe the Spring Break crowd will return in force next year. Maybe cruise lines and air carriers will begin operating closer to capacity in the months ahead, bringing weekenders from the US who are eager prove their patriotism by being spendthrifts in Mexico once more. Maybe. Until then, the Mexican economy is hurtling off a cliff.