The Mexican Sources of Isolation from the International Financial Turmoil

The Mexican economic performance is linked to US Economy given its economic integration. In fact, the last US economic slowdowns have affected the economic growth prospects of Mexico. This is the reason why we should be worry about it. However, according to the government the effect of this disorder this time will be limited; the treasury secretary Agustin Carstens said: “Mexico is not involved in the current crisis in the United States; in addition to that, given the fiscal and monetary policy in Mexico, our country does not depend on external financing”.

Recent data supports the government lecture. The probability of grater monetary astringency has fallen because less inflationary pressures principally by the downtrend of house rents, low prices in vegetables, and less pressures form international commodity prices. The aggregate demand has not weakened; the retail sales show stable levels. On the supply side, the coincident indexes of service and agricultural sectors have shown stable variations (IGAE). In financial sector; the mortgage, private, and consumer credit interest rates keep its historically low levels; and in the case of the principal organization that provide mortgage credits (INFONAVIT) keep its peace to provide half million mortgages credits in 2008 (the highest level). The follow graph, based upon the most current of data, shows a set of indicators to see the recent evolution in aggregate demand, credit supply, output and prices dynamics.

Macroeconomic Indicators in Mexico
(Annual percentage rate)
	2007		2008
	June	July	June	July
Real Wages Increases	0.8	0.3	-0.7	n.d.
Home Rents	2.9	2.9	2.9	2.8
Retail Sales	3.7	4.1	1.5	2.8
Industrial Activity	0.4	3.2	-0.4	-0.2
Services Activity	3.7	5.6	1.8	4.2
Agricultural Activity	9	7.2	1.1	9.7
Mortgage Rate 1/	14.9	14.7	14.1	14.2
Private Credit Rate 1/	7.5	7.5	7.9	8.3
With Data of August
	July	Aug	July	August
Non-oil exports	13.3	9.8	15.9	-2.7
Total private financing	32.07	34.4	21.6	18.7

1/ Interest rate

Sources: INEGI (www.inegi.gob.mx ), Bank of Mexico (www.banxico.org.mx ), Department of Labor and Social Welfare (http://www.stps.gob.mx/).

According with this information, we are no longer seeing the typical sensibility to US business cycle. The industrial activity will be the most affected; however this time the Mexican economy has automatic stabilizers such as fiscal discipline; monetary policy room; relatively low levels of inflation; savings, private and public debt in local currency; an adequate pension system; less prices pressures from international markets; healthy financial organizations; and a dynamic services sector.

At the end, the weak US economic activity and the squeezed of international credit will have an important effect over the Mexican economic outlook. However, Mexico is more suitable to deal with this short of financial crisis and avoid the recession. And a set of economic reforms would supported and minimize its impact and the probability of recession; the kind of reforms to give alternative sources of economic growth could reached through improving the competition legal framework, giving more flexibility to labor market, encouraging better banking practices and competition, giving financial access to uncovered sectors, promoting infrastructure investments, improving the implementation of monetary policy and using appropriately the public expenditures.

Is important take in consideration that the institutional economic reforms materialized in the Washington consensus, have provide economic flexibility no only to Mexico but many countries in the world (particularly developing countries). This time internal forces in these countries will be the main factor to avoid a world recession. More importantly, in these countries there leeway to compensate the weak economic conditions that developed countries will face in the following years.