VZCZCXRO1303
PP RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0292/01 2121413
ZNR UUUUU ZZH
P 311413Z JUL 09
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 3858
INFO RUEHME/AMEMBASSY MEXICO PRIORITY 4931
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 9454

UNCLAS SECTION 01 OF 02 MONTERREY 000292 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD EIND EINV ELAB ECON MX
SUBJECT: NUEVO LEON ECONOMIC OUTLOOK IMPROVING SLIGHTLY 
 
MONTERREY 00000292  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  The State of Nuevo Leon's Secretariat of 
Economic Development (SEDEC) estimates that the 2009 GDP decline 
for the state will be less than the national average and that 
employment will increase during the remaining months of the 
year.  SEDEC expects monthly exports to stabilize at around US$ 
1.1 billion per month.  Although many small companies have 
closed, large companies are in a position to resume higher 
production when demand increases.  However, the state's recovery 
will depend on the speed of the U.S. economic recovery and the 
severity of an expected increase in H1N1 influenza cases in the 
fall.  End summary. 
 
 
 
GDP Decline Estimated to Be Less than National Average, 
Unemployment Higher 
 
--------------------------------------------- --------- 
 
 
 
¶2.  (SBU) Figures recently compiled by the State of Nuevo Leon's 
Secretariat of Economic Development (SEDEC) forecast that 2009 
GDP in the Mexican border state will decline by 5.7 percent, 
less that its prediction of a 6.3 percent drop in the national 
GDP.  State employment, heavily dependent on exports to the 
U.S., has suffered more than the national average during the 
recession according to Mexican Institute of Social Security 
(IMSS) figures.  The automotive, electrical products and metal 
products sectors have been most affected.  (Note:  IMSS figures 
are only a rough estimate of the employment situation in Mexico. 
 Mexico has a significant informal economic sector, which does 
not participate in the IMSS, making aggregate unemployment 
figures unavailable.  End note.) 
 
 
 
Decline in Exports Expected to Stabilize 
 
---------------------------------------- 
 
 
 
¶3.  (SBU) SEDEC Director of Economic Studies David Martinez told 
EconOff on July 29 that he expected a halt in the decline of 
Nuevo Leon exports as the U.S. economy stabilized and diminished 
inventories are replenished.  He estimated an average of US$ 
1.25 billion in monthly exports for the rest of 2009, down from 
around US$ 1.7 billion monthly before the recession hit in the 
second half of 2008. 
 
 
 
Small Companies Close, Larger Companies Cut Costs 
 
--------------------------------------------- ---- 
 
 
 
¶4.  (SBU) Martinez noted that small companies had borne the 
brunt of the recession and many had closed.  Larger companies, 
with greater resources, have weathered the recession better. 
They have cut personnel costs through layoffs and cutting back 
on workers' hours and so could rapidly resume higher production 
rates.  Monterrey AmCham officials told EconOff that companies 
have cut nonessential costs, such as membership dues in trade 
organizations, resulting in a 20 percent decrease in AmCham 
membership over the past year. 
 
 
 
Foreign Investment Postponed 
 
---------------------------- 
 
 
 
¶5.  (SBU) Martinez stated that many foreign companies have 
postponed investments in Nuevo Leon due to the current economic 
climate.  SEDEC Undersecretary for Foreign Investment and Trade 
Andres Franco estimated that foreign direct investment for 2009 
would be around US$ 1.1 billion, a drop of US$ 400 million from 
¶2008.  However, he said this was better than SEDEC had expected. 
 
 
 
 
 
MONTERREY 00000292  002.2 OF 002 
 
 
Better Days Ahead? 
 
------------------ 
 
 
 
¶6.  (SBU) Martinez was optimistic about the state's economic 
future.  He pointed to studies showing an improvement in 
consumer confidence in the country and predicted employment 
would continue to improve in Nuevo Leon.  (Note:  The state was 
one of the few in Mexico to post a net job increase in June, 
albeit a modest one - 4,667 jobs per IMSS figures.  End note.) 
Martinez predicted a quicker recovery in Nuevo Leon than in 
other parts of the country due to the state's reliance on the 
now stabilizing U.S. market. 
 
 
 
Hurdles Ahead 
 
------------- 
 
 
 
¶7.  (SBU) He was reluctant to give a timeframe for Nuevo Leon's 
rebound from one of the worst economic downturns in the last 20 
years, noting that this would depend on the speed of U.S. 
economic recovery.  Martinez pointed to the recovery period 
after the 2000 - 2001 recession, almost 44 months, and noted 
that this recession was worse in terms of GDP decline.  An 
intensification of the H1N1 influenza epidemic could also 
forestall the state's economic upturn, he added. 
 
 
 
Comment 
 
------- 
 
 
 
¶8.  (SBU) Nuevo Leon's export-driven economy is well-positioned 
to benefit from a U.S. economic upturn and should rebound more 
quickly than most other Mexican states when that occurs. 
However, the state faces a number of hurdles along the way. 
Economic data in the state focuses on the activity of large 
companies, so the damage to smaller companies and the informal 
sector may not be immediately remediable by brighter economic 
news.  The uncertain future of the U.S. automotive industry may 
also delay a recovery to post-recession prosperity.  Finally, a 
resurgence of the H1N1 epidemic in the fall could hobble the 
recovery for some time to come. 
WILLIAMSONB