VZCZCXRO6131
PP RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0202/01 1491623
ZNR UUUUU ZZH
P 291623Z MAY 09
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 3748
INFO RUEHME/AMEMBASSY MEXICO PRIORITY 4812
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 9331

UNCLAS SECTION 01 OF 02 MONTERREY 000202 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON PGOV ETRD EFIN MX
SUBJECT: MEXICAN ECONOMIC RECESSION DEEPENS;  BUSINESS COMPLAINS 
ABOUT LACK OF EFFECTIVE STIMULUS MEASURES 
 
REF: MONTERREY 176 
 
MONTERREY 00000202  001.2 OF 002 
 
 
¶1.       (U)  Summary.   Mexico's growth rate showed a sharp 
8.2% annualized decline in the first quarter of 2009, indicating 
a deeper recession than expected.  Several local economists now 
project that Mexico's economy will decline 6-7% in 2009.  Credit 
remains tight and confidence is still low, as employment 
statistics indicate that the recession is rolling south.  Post 
contacts think that the Mexican federal government has done 
little to stimulate a recovery, as spending and employment 
assistance has been strangled by bureaucratic red tape.  End 
Summary. 
 
 
 
Recession Worse than Expected as it Rolls South 
 
 
 
¶2.       (U)  Monterrey economists had expected that the Mexican 
economy would contract around 7% in the first quarter of 2009, 
so the 8.2% annualized decline was much worse than expected. 
Prominent local economist Salvador Kalifa expects the second 
quarter to be just as bad, as the economy slowdown will reflect 
the H1N1 flu closures.  He thinks that Mexico will have a 3-5% 
fall in Q3 and a flat Q4, resulting in a 6-7% GDP decline in 
¶2009.  The American Chamber of Commerce economic forecast has 
also slipped, from an early May forecast that Mexico's economy 
would fall 4.1% in 2009 to its current estimate of a 6.2% drop 
for the year.   Moreover, business confidence is low.  The Bank 
of Mexico survey of private economists found that their 
confidence levels continue to decline, mirroring low business 
confidence in the United States.   A good indication of the 
cautious attitude is an anecdotal report of falling business 
investment.   Carlos Mortera, general manager for the 
Association of Manufacturing Technology (AMT), reported that in 
several cases companies' board of directors have approved 
capital expenditures, but the company decided not to spend but 
rather to retain its capital.  In another indicator, AMT 
projects that capital goods imports, after rising close to 20% 
in 2008, will fall more than 25% in 2009. 
 
 
 
¶3.       (U)  The recession also appears to be rolling south. 
As reported in reftel, the border states of Chihuahua and Baja 
California, the most heavily dependent on maquila exports to the 
United States, were hit first and hardest, followed by Nuevo 
Leon near the border, while there was much less impact in the 
center and Southern parts of Mexico.   Agustin Del Rio, Nuevo 
Leon delegate of the Bank of Mexico, provided econoffs 
employment statistics showing the recession moving south.  In 
one quarter employment had fallen substantially in Northern 
Mexico, but it was holding steady or increasing in the South. 
However, in the following quarter the recession had spread south 
with most areas of Mexico showing employment declines.  Northern 
Mexico was hit first due to its dependence on U.S. exports, but 
now the recession has spread throughout Mexico due to falling 
consumption spending, low confidence levels, and tight credit. 
 
 
 
¶4.       (U)  Although business credit markets have slightly 
loosened, business leaders and economists agree that credit is 
still hard to get.  Mortera of the Association for Manufacturing 
Technology thought that credit was becoming increasingly 
available, but credit lines were still tight and expensive, and 
little credit was available for smaller companies.  Monterrey 
TEC Business professor Alejandro Ibarra continues to see 
illiquidity in the market, as banks are not lending despite 
borrower demand, and 65% of companies still depend on credit 
from their suppliers for working capital.  Bank of Mexico 
delegate del Rio agreed that credit remains very tight, 
expensive, and not available to some (especially smaller) 
companies. 
 
 
 
¶5.       (U)  The one bright spot for Mexico is that inflation 
fears are abating.  Inflation had increased to 6.5% in 2008, 
more than double the Bank of Mexico's 3% target.  Several post 
contacts were concerned that the depreciation of the Mexican 
peso in the last six months would spur inflation as a result of 
higher prices for imported goods such as food.  However, most 
forecasts are similar to that of the Amcham, which projects 4.4% 
inflation in 2009 and 3.8% in 2010.  Although there still are 
inflationary pressures due to the increased cost of imports, the 
recession has dampened demand and prevented producers and 
 
MONTERREY 00000202  002.2 OF 002 
 
 
retailers from passing along price increases.  In addition, the 
worldwide drop in most commodity prices has also reduced 
inflationary pressures.  Bank of Mexico delegate del Rio added 
that their surveys demonstrate that inflation expectations 
remain low.   Economist Kalifa dissents, and he expects 
inflation to remain at the 6% level for several years before 
fading. 
 
 
 
GOM Anti-Recession Measures are Ineffective 
 
 
 
¶6.       (SBU)  Post's government, academic and private sector 
contacts all agree that the federal government's anti recession 
programs have not worked.  Monterrey TEC Professor Ibarra 
criticized the government's infrastructure programs, stating 
that bureaucracy and red tape have meant that very little 
stimulus money has actually been spent.  John Castany, President 
of the Nuevo Leon Maquila Association, also thought that overly 
restrictive rules on government programs to preserve employment 
had resulted in little participation by the private sector, so 
few jobs were saved.  However, Castany praised programs to 
continue social services to laid off workers, and a program to 
allow people to pull money from retirement accounts to pay their 
government housing mortgages.   In general, though, Bank of 
Mexico delegate del Rio acknowledged that few of the GOM 
anti-recession measures have worked. 
 
 
 
¶7.       (U)  Comment.  The first quarter economic decline was 
worse than expected, indicating that Mexico is in a deep 
economic trough.  Post reported in reftel that the pace of job 
losses in Nuevo Leon had slowed, which could indicate that Nuevo 
Leon (and border areas) are close to the bottom as the economic 
recession rolls south.   Post contacts expect a very slow 
economic recovery in Nuevo Leon starting in 2010.  End Comment. 
WILLIAMSON