Economy heads south… maybe literally

The Mexican new housing market is booming and  the Bolsa rebounded, “closing up by 6.36 percent, the largest surge since June 2006, reaching 26,892.74 points.”

Ana Maria Salazar writes that the “stock exchange increase was a positive reaction in response to the U.S. Federal Reserve announcement cutting the benchmark lending rate by 0.75 points, three-quarters of a percentage point.”

Normally, when the U.S. economy catches a cold, Mexico develops pneumonia. While Guillermo Ortiz (the Bank of Mexico’s Governor… more or less like the Chairman of the Federal Reserve in the United States) warns that a U.S. recession will affect Latin America, and experts at the Davos Forum think the U.S. is already in a recession, he is hopeful Mexico can weather the storm. Felipe Calderón is also saying the Mexican economy is prepared to withstand a downturn north of the border.

I am not an economist and I don’t pretend to have inside information on … almost anything… but there seem to be a few things working in Mexico’s favor right now.

Mexican exports to the U.S. — oil, automotive parts and narcotics — are not going to be affected much. Even if the U.S. cuts oil imports, it will be OPEC that’s affected. Mexico oil (already somewhat underpriced) will still be needed… and the U.S. needs the business PEMEX provides.

If new car sales are down, the market for auto parts is going to go up. Gringos aren’t going to give up their cars.

Narcotics are not a luxury item for their users. And, something that I always found amusing (and remember from a statistics class as an warning about being careful to draw conclusions from statistical data): church attendance and narcotics use increases in a bad economy. I suppose Mexico may be able to also export Catholic priests.

Another upside: I’ve thought for years (and it’s one reason I think the Mexican left, over the long run had the better economic prescriptions) that Mexico depends too much on the U.S. for exports, and needs to diversify. Less sales to the U.S. — and the need to find financing elsewhere — will increase trade with the rest of Latin America, and maybe convince Mexico to forge closer ties with the Banco del Sur/Mercosur countries.

Agriculture is already in the dumper, but with less exports, there may be a better domestic market for Mexican vegetables and fruits (and maybe we’ll finally start getting decent Mexican coffee in Mexico)

Downside: I suspect remittances have been a huge factor in the Mexican building boom… and have been invested in the domestic market. With less work in the U.S., Mexican remittances are going to drop… and there will be attempts to “blame” the recession on Mexican workers sending money home (even though all data shows remittances are good for both the employing and employee-providing countries) .

Tourism will probably take a hit, but with retirees having to scale back, more will probably consider Mexico a viable option. And, if people aren’t spending as much on travel, they will be spending more on books… GOOD! However, in the short run, I’ve already become a victim of the recession we don’t have. I make my living driving a van for the railroad, but — and I don’t think the press has noticed — there aren’t as many trains passing through lately. Hopefully, that’s not a sign of anything, but my income is about half what it normally is, during the usual bad times. I still need to pay off two large loans, buy tires and have some mechanical work done on the old Volvo before I go south myself…